How Law Firms Can Force Companies Into Bankruptcy

Bankruptcy is a legal process that helps individuals and businesses get a fresh start by liquidating assets to pay off debts or creating a repayment plan. A law firm cannot directly bankrupt a company, but it can provide legal services to guide individuals or businesses through the bankruptcy process. This process is governed by bankruptcy laws, which vary by jurisdiction, and it is recommended to seek qualified legal advice due to the long-term financial and legal consequences of bankruptcy.

Suing a company in bankruptcy

Suing a company that has filed for bankruptcy is a complex procedure. The process is similar to any other civil lawsuit, but with added layers of complexity and court supervision at the beginning and end of the case. If you are considering suing a company in bankruptcy, it is important to consult a lawyer who fully understands the bankruptcy process and can guide you through the specific rules and procedures that apply.

When a company files for bankruptcy, it seeks protection from its creditors under the law. This means that if you have a pending lawsuit against the company, the bankruptcy filing may impact your ability to continue with the lawsuit or collect any potential judgment. The bankruptcy court will issue an automatic stay, which is a court order that prohibits creditors from collecting debts during the bankruptcy process. If you wish to continue your lawsuit, you will need to file a motion with the bankruptcy court to lift the automatic stay, which may or may not be granted.

It is important to note that if your lawsuit is discharged through the bankruptcy process, you may be prevented from continuing with it or collecting any money from the company. However, there are exceptions to this. For example, if your lawsuit alleges that the company caused you willful and malicious injury or defrauded you, the debt may be non-dischargeable, and your claim may survive the bankruptcy. In such cases, you may be able to collect compensation when the bankruptcy estate is liquidated.

Additionally, the court may allow a state civil case to continue if the outcome will not affect the bankruptcy case. For example, if a plaintiff sues the debtor's insurance company in a personal injury case and the insurance coverage is sufficient to cover the claimed amount, the bankruptcy estate will not be impacted even if the plaintiff wins the case. In this scenario, the lawsuit can likely proceed without interruption.

Overall, suing a company in bankruptcy requires careful navigation of the legal system and a thorough understanding of the bankruptcy process. It is essential to seek legal counsel to ensure that your rights and interests are protected throughout the process.

The role of a bankruptcy lawyer

Bankruptcy lawyers offer informed advice on the most suitable type of bankruptcy declaration (Chapter 7, 11, or 13) based on their client's unique financial situation. They closely evaluate the client's financial scenario to recommend the best course of action, considering the different outcomes and obligations of each bankruptcy type. The process of filing for bankruptcy is paperwork-intensive, and lawyers assist clients in navigating the legal requirements and strategic decision-making involved.

Bankruptcy lawyers also represent their clients' interests in various hearings and court appearances, including meetings with creditors (known as 341 meetings) and negotiations. They ensure that creditors adhere to the automatic stay that goes into effect after filing for bankruptcy, providing temporary relief from creditor harassment. Additionally, they address any issues of continued harassment or illegal collection attempts.

Post-bankruptcy, skilled bankruptcy lawyers provide guidance on financial management to help individuals rebuild their financial standing and make informed decisions to avoid future financial predicaments. They empower their clients to understand the bankruptcy process and make informed choices.

The cost of hiring a bankruptcy lawyer can vary depending on several factors, including the complexity of the case, the lawyer's experience and reputation, their location, and the type of bankruptcy being filed. While individuals can file for bankruptcy without a lawyer, statistics show that those represented by lawyers achieve more favourable outcomes, with higher rates of debt discharge.

Bankruptcy and trading of securities

When a company files for bankruptcy protection, its shares often lose most, if not all, of their value. This is because the company's plan of reorganization usually cancels the existing equity shares. In bankruptcy cases, secured and unsecured creditors are paid from the company's assets before common stockholders.

There is no federal law prohibiting securities trading during bankruptcy proceedings. A company's securities may continue to trade even after the company has filed for bankruptcy under Chapter 11. However, companies that file under Chapter 11 of the Bankruptcy Code are generally unable to meet the listing standards to continue trading on major stock exchanges like Nasdaq or the New York Stock Exchange. Instead, their shares may continue to be traded on over-the-counter platforms like the OTCBB or the Pink Sheets.

If a company emerges from bankruptcy, there may be two types of common stock with different ticker symbols trading for the same company. The first is the old common stock, which was on the market when the company went bankrupt and is usually subject to substantial dilution. The second is the new common stock issued by the reorganized company under a new trading symbol as part of its reorganization plan.

Investing in bankrupt companies is considered very risky and is likely to lead to financial loss. This is because, in most cases, common shareholders are left without a payout as powerful people and creditors tend to get paid first. Additionally, even if the company successfully reorganizes and becomes profitable again, the old stocks are unlikely to regain value.

The bankruptcy process

For individuals, the most common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 involves liquidating the debtor's non-exempt assets to pay off their debts, while Chapter 13 allows the debtor to keep their assets and create a repayment plan to pay back their debts over time.

For businesses, the most common type of bankruptcy is Chapter 11, which allows a business to reorganize and restructure its debts. This can involve negotiating with creditors, selling off assets, or creating a repayment plan. Chapter 11 can be used by corporations, sole proprietorships, or partnerships. In the case of a corporation, the business exists separately from its owners (the stockholders), so their personal assets are not at risk beyond the value of their investment in the company's stock. For sole proprietorships and partnerships, however, the business and personal assets of the owners may be at risk and may be used to pay off creditors.

During the bankruptcy process, the debtor may institute adversary proceedings to recover money or property for the estate. This can include lien avoidance actions, actions to avoid preferences or fraudulent transfers, or actions to determine the validity or priority of a lien. Creditors may also initiate adversary proceedings to revoke an order confirming a plan, determine the dischargeability of a debt, or subordinate a claim of another creditor. It is important to seek the advice of a qualified lawyer during the bankruptcy process, as it can have long-term financial and legal consequences.

Bankruptcy and company reorganisation

Bankruptcy is a way for people who can no longer pay their debts to get a fresh start by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect financially troubled businesses. Bankruptcy cases are handled in federal courts under rules outlined in the U.S. Bankruptcy Code. There are different types of bankruptcies, referred to by their chapter in the U.S. Bankruptcy Code. Individuals may file for Chapter 7 or Chapter 13 bankruptcy, depending on their situation.

Chapter 11 is typically used to reorganise a business, which may be a corporation, sole proprietorship, or partnership. Under Chapter 11, a company can reorganise its business and try to become profitable again. Management continues to run the day-to-day operations but all significant business decisions must be approved by a bankruptcy court.

Chapter 7, on the other hand, is used when a company stops all operations and goes completely out of business. A trustee is appointed to liquidate the company's assets and the money is used to pay off debts to creditors and investors. The trustee may also attempt to recover money or property under their "avoiding powers", which include setting aside preferential transfers made to creditors within 90 days before the petition and undoing security interests and other pre-petition transfers of property.

It is important to note that bankruptcy has long-term financial and legal consequences, and seeking the advice of a qualified lawyer is strongly recommended. The bankruptcy process can be complex, and an experienced lawyer can help individuals or businesses understand their rights and navigate the specific procedures involved.

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