Waiting for the Complaint

[Mack2323]

Hi ..
We are waiting for Debtor to file his Complaint to launch the AP.
Court ordered the AP after hearing on contested matter re Objection to our Claim.
Looks like we will need another Lawyer. Our case was a civil case to try and recover commissions and other income from Debtor for services. Civil case ended as non-suit.
Now that we have read other posts on topic, no way for us to Answer Complaint
Pro se.
Darn shame cuz the last trial cost us 15K in legal fees for nothing. And debtor defaulted on his lawyer fees as his lawyer is also a creditor with us.
Think this debtor has taken advantage of the bk system from what we can see.. like it was all planned from start of first Civil Complaint.
No question yet. Just our first thoughts on AP.

[justbroke]

Well, bankruptcy is, in fact, a legitimate and legal way to avoid paying a debt. Proving that a debtor ran up a large amount of debt on the eve of bankruptcy, with no intent of repaying the debt, is a difficult hurdle to overcome! Simply stating that the debtor didn't like the outcome of a civil matter, so ran to bankruptcy court for protection... well... is the whole reason to run to the bankruptcy court for protection.

Is this a Chapter 7 or Chapter 13 case? If it's a no-asset Chapter 7, then I don't even know why this would go to adversary unless it's an asset case. If it's a Chapter 13 case, I still don't see why it would go to adversary. Adversary, when it comes to claims, is usually to determine dischargeability... so I'll assume that you are talking about a Chapter 7 case. In that case, Chapter 7, you would need to prove fraud in order to make an otherwise dischargeable debt, non-dischargeable. It is in fact a difficult burden to prove and this is why many unsecured creditors don't pursue -- due to the costs.

If you already lost in Civil Court, under what theory do you believe that you'd prevail in a Bankruptcy Court? Remember, that if this is otherwise a dischargeable debt, the hurdle to prove that it would not be under the law, is difficult.

[Mack2323]

Hi Justbroke,
Its a 13 for now. We filed our claim as a priority. We did not loose the Civil case. It was a non-suit. We were about to re-file Civil case 2, and Debtor ran over to the BK house first.
We do have a good case for fraud. We answered his objection to our claim. The burden of proof is now on the Debtor yes?
The Judge ordered the AP.

[justbroke]

Okay, so this is just a standard dischargeability issue in a Chapter 13. The Adversary is the ONLY way to do this correctly. Additionally, I don't think you'll ever get the debt as priority. Priority debt is a reserved class for creditors and I don't think anything other than tax debt, and perhaps arrears on child support or other maintenance, would ever get a priority status. (Although there are some ongoing items that may be entitled to priority.)

The burden is on the creditor unless it is one of those items in 11 USC 523. Even so, a complaint (AP) is the only way to really adjudicate it. Proving fraud can be difficult. You are going to spend a lot of money on an AP. Have you evaluated whether this is financially worth it to pursue if you loose?

This is worth repeating:

If you already filed a non-suit in the Civil Court, under what theory do you believe that you'd prevail in a Bankruptcy Court? Remember, that if this is otherwise a dischargeable debt, the hurdle to prove that it would not be under the law, is difficult. What the debtor will ask you under oath during an adversary is why you filed a non-suit and may even seek judicial estoppel.

[Mack2323]

Only a % of our claim is priority based on what is allowed for commissions due.
Debtor objected to our Priority claim.

Yes, 523(a)2(A), 523(a)(4), 523(a)(6). The debtors behavior was egregious and well documented.
We recovered a lot of information in discovery during the 1st civil case.
The elements to prove fraud don’t seem to be very difficult to meet in this matter with the debtors emails, and other.

Not completed our evaluation of costs to move forward with AP yet. Waiting on debtors Complaint. But the AP will happen unless debtor wants to cut a deal w/us. And that would be ok if it's in good faith.
We see debtor was scheduled for last meeting with Trustee next month. Guess this AP will postpone that meeting and the Trustees recommendation and order to resolve our matter before the next hearing with the Trustee. This will be the debtors 5th Show Cause delay for CH-13 plan approval. Maybe that is just normal.

The non-suit was due to a flawed theory by our Lawyer of the value of our services that the Judge was not going for. So we asked for a Non suit to preserve the merits of our case.
Now in this AP we are pursuing only commissions that have been documented for the most part. However, the debtor has worked to conceal some of this data from us.

We think the debtor is on a tight time frame to get CH-13 plan approved asap. This AP may span six months or longer to resolve. And we are in no hurry.

[justbroke]

It should be interesting. I'm assuming that your claim is partially priority because this is for commissions "earned" within 90 days of the debtor filing or the business ceasing operations. The emphasis is on "earned", and not simply "due" to the employee(s).

I think that the costs to litigate an adversary will probably have you both settling, but I super-speculating.

[Mack2323]

Yes, this matter could be a book. We are small time business folks who needed to be paid for our work to be able to pay our bills...like anyone.
Greed was the factor that started the debtor slide into bk.
However, what is interesting is that debtor is not in BK due to the past civil case as he asserts in public. There was no judgment. and no out of pocket legal fees over 5K. We learned a new term called bust-out...that is the real reason for the BK...Not us.

The commission issue is more complicated than I can go into. 523(a)(2)(A) may fix it.

We would be happy to settle. Say for 50% of our total claim this matter would be over...But the debtor so far has a mindset of burn down all the towns as he retreats from the battle.