North Hollywood, CA asked in Bankruptcy and Contracts for California

Q: What if a defendant files for personal or biz bankruptcy before making all the payments of a settlement payment plan?

This is if both the defendant and attached business are named in the settlement. There would be a stipulation for entry of judgment attached to the settlement. The concern is the defendant defaulting and possibly filing bankruptcy prior to making payments.

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6 Lawyer Answers
Tristan Brown
Tristan Brown
PREMIUM
Answered
  • Bankruptcy Lawyer
  • San Diego, CA
  • Licensed in California

A: More information is needed to determine how a bankruptcy may affect the settlement.

Once the defendant files for bankruptcy, whether it be personal or business bankruptcy, an automatic stay is generally issued. The automatic stay may legally prevent you from enforcing the settlement or collecting for a period of time.

Be mindful that the nature of the debt is a large factor in determining whether or not the debt at issue will be discharged in the bankruptcy. If the settlement you mentioned pertains to a debt that is non-dischargeable in bankruptcy, you may be able to collect and enforce the settlement at a later time. However if debt is a dischargeable debt, you may be out of luck.

I encourage you to speak to a knowledgeable bankruptcy attorney in your state.

Timothy Denison agrees with this answer

W. J. Winterstein Jr.
W. J. Winterstein Jr.
PREMIUM
Answered
  • Bankruptcy Lawyer
  • Boyertown, PA

A: If your claim against the individual defendant falls within one or any of the exceptions to discharge, you/your lawyer should draft your settlement documents to clarify that, i.e., borrow/paraphrase the language of the bankruptcy exception.

Note that the bankruptcy court has the power to "look behind any judgment" to determine whether the underlying claim(s) fall within any of the discharge exceptions, so the wording of any settlement/consent judgment will be subject to bankruptcy court review.

Corporations are not eligible for a Ch.7 Discharge, although a a Ch. 11 plan can be confirmed that does effectively provide for a corporate foregiveness of debt.

A bankruptcy discharge is a right sourced to the US Constitution, and for which the US Bankruptcy Code provides in detail. As a federal statute, the Bankruptcy Code is the supreme law of the land and no state law, or court, can supersede the Bankruptcy Code.

Harlene Miller
Harlene Miller
Answered
  • Bankruptcy Lawyer
  • Irvine, CA
  • Licensed in California

A: It depends on several factors including: type of bankruptcy filed, whether the individual or corporation filed bankruptcy; whether the settlement provided for some security on assets of the defendants;type of claim such as breach of contract or fraud, etc. I urge you to talk with an experienced bankruptcy attorney in order to provide more details to the attorney and get a more specific response. Many of us offer a no charge half hour phone consultation which can provide an overview of issues depending upon the facts.

Theodore Allan Greene
Theodore Allan Greene
Answered
  • Bankruptcy Lawyer
  • Sacramento, CA
  • Licensed in California

A: You really need to sit down with a Bankruptcy attorney to determine what options are available to you. Then you will know if you need to do anything proactively or just wait and see if they file.

Bernard S. Via III
Bernard S. Via III
PREMIUM
Answered
  • Bankruptcy Lawyer
  • Bristol, VA

A: Under a ch. 7 filing you file a claim for the full amount you were owed. You will not get that from the bankruptcy Trustee as he has to split the pie with his fee and the other creditors. The settlement agreement may be interpreted as paying off a lump sum. When the bankruptcy says the debt is discharged it is gone Your only recovery is what the Trustee gets from the debtors assets if any (shared with other creditors).

Aaron Michael Lloyd
Aaron Michael Lloyd
PREMIUM
Answered
  • Bankruptcy Lawyer
  • San Bernardino, CA
  • Licensed in California

A: Did the individual file an asset or a no asset chapter 7 bankruptcy case?

If an asset chapter 7 bankruptcy case was filed then as a creditor you have a certain amount of time to file a form with the bankruptcy court to be eligible for an asset distribution in the case.

On the other hand, if a no asset chapter 7 bankruptcy case was filed then you would have a deadline to file an action on the bankruptcy case to ask the Court the debt not be discharged (assuming the type of debt falls within one of the bankruptcy discharge exceptions).

In either scenario, you will want to hire an experienced bankruptcy lawyer to review your rights as a creditor.

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