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Elizabeth Prentice
Elizabeth Prentice, Attorney
Category: Bankruptcy Law
Satisfied Customers: 174
Experience:  Managing Attorney for one of the largest consumer bankruptcy firms in America.
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Can someone with legal knowledge please look over this exchange with my attorney and I, and let me know who is right in this? This is relating to a company that is filing a 100,000+ lawsuit against my business just because they can contractually, though the company has zero dollars in the account. ME- From what I have researched it seems the best strategy would be to get a default judgement and then file a corporate bankruptcy to discharge the debts and dissolve the company? ATTORNEY- I disagree. A default judgment would immediately allow the plaintiff to file a motion with the court to add you personally as a judgment debtor. That would be he worst of all possible circumstances. ME- Right but I signed as an officer of the company and nowhere in the contract betweenX and X does it mention my name nor say I personally guaranteed?

I am a bankruptcy attorney and I would be happy to assist you. A company can file bankruptcy and discharge debts relating to contracts or lawsuits, as long as there is no allegation of fraud in the matter. The court will not discharge judgments based on fraud. If the company files bankruptcy right now, it will actually stop the law suit due to the automatic stay and it will discharge any debt the company owes to the Plaintiff before any default judgment occurs. Of course a Chapter 7 liquidation of the debt will also mean that the company would be liquidated along with any of its assets to repay the company's creditors. The worse case scenario in bankruptcy would be that the Plaintiff will file an adversary proceeding against the company in the bankruptcy court. The benefit would be that the trustee would be involved, as well. An adversary proceeding is similar to a mini-trial before the bankruptcy judge assigned to your case. The Plaintiff would have to argue why his debt should not be discharged in the case. It is common, but rarely does the judge find reasoning without evidence of fraud to not discharge a litigation/contract debt. So the company will have the advantage in bankruptcy court, versus state court.

Your attorney mentioned a scenario as well that can occur. It is called "piercing the corporate veil." If the company filed bankruptcy, the Plaintiff could sue you personally, claiming that you somehow mismanaged the company and filed bankruptcy on behalf of the company in order to avoid paying the Plaintiff's debt. In which case you would need to defend yourself personally, and potentially might want to file personal bankruptcy, as well. I am not saying he would win, but he has the right to try. It sounds like your attorney was just trying to warn you of worst case scenarios. I would recommend that you meet with a bankruptcy attorney as soon as possible in your area. A great place to start is by contacting your local state bar lawyer referral service where they can provide you with the name and number of a pre-approved bankruptcy attorney who typically provides discounted consultations.

I hope my answer has assisted you and that you will leave me a positive rating. Please feel free to ask for my directly by name if you have any follow-up questions.
Customer: replied 4 years ago.

What is the best advice you have in terms of what my steps should be. Do I file an answer or do I let them make a default judgement?

I am only permitted to provide information, not specific legal advice as this site is for informative purposes. However, in either situation you can still file bankruptcy today which will stop the case completely and will prevent the default judgment and obviate the need for an answer. There are positives and negatives to both situations (default or answer). An answer will typically cost a filing fee, which might be better spent toward filing bankruptcy, but the Answer will prevent a judgment from being filed. A default judgment on the other hand will provide resolution on the matter and an exact amount to be listed in the company's bankruptcy, but then there is a formal judgment on public record. There is no perfect answer as it depends on a variety of factors. I think the best option for you would be to meet with a bankruptcy attorney in your area today before you decide.
Customer: replied 4 years ago.

Ok. So if I were to submit an answer that would buy a lot more time to then file a bankruptcy. My biggest concern is ME being liable somehow. What is best information you can give me on not being liable.

Yes, you are correct in that an Answer will provide you more time within which to file bankruptcy on behalf of the company before a judgment is issued. With regards XXXXX XXXXX liability, as your attorney mentioned and I mentioned previously about "piercing the corporate veil" in my post above, even if the company discharged the debt in bankruptcy, the creditor could potentially sue you under the tort "piercing the corporate veil." Please make sure you read my post above on that issue. I am not saying it will occur, but it is good that you are merely aware that it could happen someday. People sue each other every day in America. I am not saying they will win, but you should know the tort (the cause of action in a pleading) exists. Make sure that you keep a copy of the contract somewhere safe so that if they sue you someday you can prove you had no personal liability. As I mentioned, you could also discharge the debt in a personal bankruptcy it is needed. But since they did not sue you personally at this point, I wouldn't worry right now over future possibilities which may never even occur.

Focus on the company's situation at hand and try to schedule a meeting with a bankruptcy attorney today. It sounds like you have a good plan of action now!

In preparation for your meeting with your bankruptcy attorney, here are a few things to bring with you: profit & loss statements, a copy of the Complaint in the court case, a list of debts and assets the company has, and anything else you think might help the attorney get a sense of the corporate financial picture.

Don't forget to rate me positively for your answers. Feel free to follow up with me as well, if you have any other questions.
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