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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38878
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I am writing a promissory note to my employer, which is in

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I am writing a promissory note to my employer, which is in weak condition financially. Can my employer and I structure the promissory note so that, if my employer declares bankruptcy, the note is automatically forgiven? I want to make sure that any creditors of my employer cannot pursue me to pay off the note if my employer becomes bankrupt.

Your employer cannot enter into such an agreement, because by forgiving a debt at the instant of bankruptcy, the employer would be transferring the value of the debt to you for less than "reasonably equivalent value," which is a fraudulent transfer under the bankruptcy code -- and, the bankruptcy trustee can avoid the transfer and reinstate the note against you.


However you choose to write the note, the forgiveness must be based on some trigger other than the employer's insolvency.



Customer: replied 8 years ago.
Thank you very much for your initial thoughts. That was very helpful. I will definitely "accept" your answer. However, can you provide some additional thoughts first? Can my employer and I structure the promissory note such that it is forgiven in the event that (a) the firm loses a major client or (b) the firm loses a pending arbitration action currently being pursued against my employer? Either of these events might trigger an eventual bankruptcy. If those are still too close to a fraudulent conveyance, could we say that the firm will pay me a bonus for my work on the major client if that client ceases to be a client? This would allow the firm to essentially forgive the note if the client leaves.

It would be better if there was something completely unrelated to employer performance. Maybe, the employer could offer you a fixed-term employment contract. And, as part of the note, you could agree that the employer has the option of terminating your employment before the contract's agreed-upon termination date, in exchange for forginving the note.


socrateaser and other Bankruptcy Law Specialists are ready to help you
Customer: replied 8 years ago.


Thank you for your second reply. Please excuse the fact that, until now, I have not "accepted" your answer. I was thinking about your second answer and whether I had any follow-up questions, which I currently do not. I am now "accepting" your answer.


Is there any way to reach you in the future? I have never used JustAnswer before so I do not know how the mechanics work. I include my contact information below.


Finally, if I am not able to correspond with you in the future, thank you for all your help. As you might imagine, this is a troubled situation and I very much appreciate your assistance.


Best regards,




You can simply put my name on the title of any future question, i.e. "ToCustomer..." Usually, someone will shoot me an email telling me that a customer is looking for me.