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My Client Just Declared Bankruptcy
Posted 19 September 2003 - 12:30 PM
This is from findlaw.com:
"Watch out for preferential treatment
If at first you decide simply to close down your business but later decide to file for bankruptcy, you may have backed into trouble. If your business eventually has to file for bankruptcy, giving preferential treatment to some creditors in the months before you file by paying off all or part of their bills can create a problem. Creditors who didn't receive preferential treatment may complain, in which case the favored creditors will have to return the money or property they received so it can part of an asset pool available for equitable distribution among all creditors. (See Section B4, above.) So even if you hope not to file for bankruptcy, try to work out similar deals with all creditors. "
Posted 19 September 2003 - 04:26 PM
I have asked some questions here before and believe I have received some very good advice. They will always tell you to hire a local attorney but they will also let you know what your general rights are. At least they did in my case.
Posted 19 September 2003 - 04:37 PM
I have made some progress today so far at figuring out what I want/need to do. I will definetly search their forum and post to see if I get any advice.
Posted 19 September 2003 - 04:42 PM
But at least the advice is free!
Posted 19 September 2003 - 05:42 PM
I feel for you, mate - that's not nice at all.
I don't know about US law, but in UK law, if someone tried to pull a stunt like that 'preferential creditor' thing on me, I'd hire a lawyer and go on the attack for the rest you're owed.
The best form of defence is attack!
Posted 19 September 2003 - 06:04 PM
Luckily we received inside info on both companies that they were in trouble and held back work.
At any rate we started receiving a series of letters from the US bankruptcy court - letters which detailed everything the bankrupt company was doing - regarding assets and the like. Never was any money demanded from us and I guess when it is all said and done, meaning after the company going bankrupt sells all its assets, that the creditors can claim a stake.
We never did because as I said, we held back work for them so that they had paid for everything up to the date they filed bankruptcy.
On the "preferential treatment" deal, is that something that they have on paper or just something they are saying? Who can prove you received preferential treatment? Your just a vendor of theirs trying to get paid for work. You are not able to know whether they are only paying you and not other vendors. I think that something would have to be on paper saying you were getting preferential treatment and if there is not, I wouldn't worry about having to give any monies back to them.
Good luck on it.
Posted 19 September 2003 - 06:42 PM
Don't give the money back.
YOU didn't declare bankruptcy, therefore, unless you in some way made a side deal with your client, YOU don't have to do anything. As long as you did the work, you are entitled to do what you can to get paid.
The reason that this rule exists is because some people who go bankrupt have been known to "pay bills" or give money away to friends and family before declaring. The rule is to prevent that. If you acted in good faith, then it's yours. The only time it wouldn't be is when the amount paid was disproportionatly large or unusual.
As long as you didn't do anything wrong or try to gain an unfair advantage, you are fine. As a matter of fact, make sure you find out who the trustee is and put yourself on their list, because your post suggests the client still owes you money. You are not only entitled to what you have, but also anything else you can get, as well. Remember - you are a victim, not a bad guy.
Any money paid to you now that the bankruptcy in going on is in an area where you have to worry about "preferential". If you want to avoid issues, go through the trustee. Trustees by and large are reasonable people who do this every day and usually don't have an axe to grind. They can be very helpful sometimes.
Edited by mcanerin, 19 September 2003 - 06:58 PM.
Posted 20 September 2003 - 08:10 PM
Why aren't you practicing law? I know from reading your posts that you are an X -lawyer. What brought about the radical switch?
Posted 21 September 2003 - 01:41 AM
After you have a minimum of 5 years of experience, you can then hire some poor recent graduate and do the same to them - at which point you then begin to actually pay off your student loans and start saving up some money.
You still have to work the 14 hour days until you become a full partner - THEN you get rich and go golfing.... But it takes many many years before that.
Right out of law school I was hired into the private sector - never even articled. At this point, I own my own company, and although I don't make as much as a full partner in a law firm would, I'm very happy and I'm in charge of my own life - which I long ago decided was more important.
Sometimes I miss the fact that I didn't article or do the traditional route - but then I go play with my kids and the feeling goes away
In the private sector, I got a lot of experience dealing with patents, contracts, mediation and so forth - to the point where the contract template I had put together was called "the best contract they had ever seen" by the legal staff of Agfa and I was asked to help defend a patent challenge against Samsung by Sony (we won). But don't ask me to do your divorce - I only know what they told me in law school about that
I like my job, but I admit it's pretty unusual for someone to go to one of the top law schools in the country and not actually go into public practice. I really do think my experiences in the private sector were more rewarding, though. Really, how many times can you defend speeding tickets per day before going nuts?
So that's my story. I'm a lawyer (small "l") but not a Lawyer (I don't belong to local Bar).
Posted 21 September 2003 - 09:45 AM
It would be interesting to find out how many people wind up in fields in which they didn't go to school for. Nowadays people switch jobs and even make career changes a lot more.
Posted 21 September 2003 - 09:59 AM
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