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Co. will file bankruptcy - should I still sue them?

Discussion in 'Business & Corporate Matters' started by WilliamW, Jan 6, 2020.

  1. WilliamW

    WilliamW Law Topic Starter New Member

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    Jurisdiction:
    Massachusetts
    I plan to sue a Massachusetts company (an LLC) in small claims court and have already served them the papers. I just learned that it ceased operations and will file for bankruptcy. Should I still sue the company, or is it not worth the time and money? The amount I'm suing for is a bit under $5,000.

    Thank you.
     
  2. Zigner

    Zigner Well-Known Member

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    We can't tell you if it's "worth it" - that's up to you. Just keep in mind that, even if they don't declare bankruptcy, the odds are slim that you could collect on a small claims judgment, even if you were successful. Once they file for bankruptcy, the odds of ever collecting anything (much less the full amount) drop dramatically. While not quite zero, it's pretty close.
     
  3. zddoodah

    zddoodah Well-Known Member

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    You've already sued, so that part of your question is moot. As far as continuing with the lawsuit, you have a defendant that has not filed bankruptcy. I don't know who told you that the company "will file for bankruptcy," but if I had a nickel for everyone who told me, "I'm going to file for bankruptcy," and never did, I'd have a lot of nickels.

    It's entirely up to you to judge how credible the threat of BK is and to determine whether or not it's worth it to you to proceed with the lawsuit.
     
  4. flyingron

    flyingron Active Member

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    Much of the decision would depend on what you are suing them over?
     
  5. PayrollHRGuy

    PayrollHRGuy Well-Known Member

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    And how much money/stuff they have and several other details.
     
  6. adjusterjack

    adjusterjack Super Moderator

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    There is no "will file" there is only file or not file.

    If it was me and I had already filed and served the lawsuit I'd pursue it.
     
  7. Tax Counsel

    Tax Counsel Well-Known Member

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    When I was an officer collecting tax for the IRS I heard delinquent taxpayers tell me all the time that they were about to file bankruptcy in an effort to get me to back off. It didn't work because I knew that most of them would never follow through on the threat.

    The LLC either files or it doesn't. Until it actually files, continue on as you would if the managers hadn't made the threat. Note that it is very unlikely a LLC will file bankruptcy because business entities do not get their debts discharged in bankruptcy like individuals do. All that would happen in a Chapter 7 bankruptcy with the LLC is that it would liquidate and pay off creditors with whatever cash it gets in liquidation, and it can do that same thing without bankruptcy.


    The more significant problem is whether the company even has assets from which you could collect (whether from liquidation or from the judgment you get). If it has ceased operations that's not a promising sign that you'll be able to collect anything.

    Do you have any possible personal claim against the owners of the LLC, either from a personal guarantee, theory of piercing the corporate veil, or perhaps a transferee claim if the LLC passed out assets to the owner without first paying the LLC debts? If you can go after the owners that would likely provide you a better shot at getting paid.
     
  8. flyingron

    flyingron Active Member

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    As Yoda said, "Do or do not. There is no try."
     

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