In the current economy, it is not unlikely that a party to an active civil action finds that the other party is filing for bankruptcy. This can have some adverse effects on the litigation of the active civil action. If for example, you sued your employer and the defendant firm or company files for bankruptcy, the civil case will then be automatically stopped. There is also an option to obtain a special permission from the bankruptcy court to proceed with the civil lawsuit. If the civil case is permitted to go on and the complainant wins the case. Then he potentially becomes one of the creditors in the bankruptcy case of the defendant.
As a creditor in the bankruptcy case against the defendant, it becomes difficult (time-consuming and costly) to recover the funds that you had been previously awarded in the civil case. You might also be forced to hire a bankruptcy attorney that will guide you through the entire process and help you navigate all the challenging issues that might arise.
The bankruptcy chapter that the defendant is using will also dictate if the payments will be made or not. Another bad outcome: The defendant doesn’t have enough assets available to pay the creditors in full. When this happen, the creditors will get a lot less than what they were supposed to get after many years of waiting.
Since there are a lot of risks posed by a defendant’s bankruptcy, many attorneys complete a thorough investigation into the financial condition of the company before filing a lawsuit. Unfortunately, a notice that the defendant has filed for bankruptcy is a sure sign that the future financial recovery is impossible.
If on the other hand the plaintiff files for bankruptcy, there are also some significant problems that would arise.
Bankruptcy has a big impact on the credit history of the plaintiff. For a civil case, bankruptcy affects the ability of the plaintiff to get money obtained either through a jury verdict or settlement.
The rules also differ depending on the type of bankruptcy filed. In general, when a person files for bankruptcy, his/her assets become part of the bankruptcy estate that is managed by a trustee. During the administration of the bankruptcy, the assets will be distributed among the various creditors. This means the money damages you get will be part of the bankruptcy assets, you won’t be able to get anything in the end.
It is important to list all the assets including potential legal disputes or pending lawsuits. Failure to do so might result in a lawsuit for misrepresentation or fraud.
The Houston Bankruptcy Law Firm of William K. Vaughn works with individuals and families throughout Harris, Montgomery, Fort Bend, Brazoria and Galveston Counties. Call us Today at 713-568-2762 Call us today for a complimentary initial consultation to discuss how Texas Bankruptcy can help you.