Thank you for giving me the opportunity to assist you. I encourage you to ask me for clarification, if you are not clear with my Answer.
I see that your previous Expert has opted out. I will attempt to respond to your follow-up question:
OK, I understand that but....this was not a loan from our Plaintiff. It was a sale of equipment which I think they are trying to say was conversion (which it was not intentionally). If Adversary Proceeding is for loans then why can they even bring this proceeding?
Response: First and foremost, a Chapter 7 business debt does not get a discharge of debts in bankruptcy. See 11 U.S.C. Section 727(a). The two benefits for filing a Chapter 7 business bankruptcy is for orderly liquidation of business assets and to prevent the officers of the business from being dragged to non-bankruptcy Courts on a daily basis. Technically, since a Chapter 7 business debtor does not receive a discharge order from the bankruptcy Court, its creditors may still come after the business for the debts but this is highly unlikely. Once the Chapter 7 bankruptcy has been concluded and all assets of the business liquidated, there is little or no incentive for a lawsuit to be filed against the bankrupt business and/or its officers.
Adversary proceeding is not limited to loans. It can be objection to your bankruptcy case in general on the account of fraud, conversion, etc.
You should continue with the adversary proceeding here. Do not settle. Otherwise, you would wind back in the State Court to litigate the same issue after your bankruptcy is concluded and before the dissolution of your business. You are better off litigating in the bankruptcy Court than in the State Court. The Plaintiff has the burden to prove its case or the Bankruptcy Court would dismiss the case. Make sure that you respond to the complaint. Otherwise, he would obtain a default judgment against you in the Bankruptcy Court.
Once your bankruptcy case is concluded, the next thing to do is file for dissolution of your business with your Secretary of State's Office. Your Chapter 7 bankruptcy filing does not automatically dissolve your business eventhough that Chapter 7 is a liquidation chapter. You must file papers with your Secretary of State Office to have the business dissolved. After that, no one can sue the business because the business no longer exists.