Recent reports of the bad economy undoubtedly worry consumers about the risk that the "target" defendant in their case may file bankruptcy and they probably are wondering what that would mean to their case if they did. Here's our thoughts.
There are two types of bankruptcies a business usually files and all lawsuits or claims are immediately stopped when any kind of bankruptcy is filed.
A "Chapter 7" bankruptcy is one where the entire business is completely liquidated, including all assets and all liabilities. The claims in a consumer's case would be a "liability" which would be included in that kind of bankruptcy. No more lawsuits are allowed to be filed and all the consumer can do is file a claim (sometimes called a "disputed and unliquidated" claim) in the bankruptcy proceedings for how much money they think is owed them. The bankrupt company’s attorney has the right to dispute any claim and the consumer would be notified if they did. All of the assets of the company are then sold or liquidated in one fashion or another to generate money and the bankruptcy court trustee, who is in charge of all of this, divides up the money according to the priority order of claims that is established by Federal Law. The bottom line is that it is very unlikely that a consumer would get much of anything out of a Chapter 7 bankruptcy. A Chapter 7 bankruptcy kills all legal liabilities of the bankrupt company.
Another kind of bankruptcy that a business can file is a "Chapter 11" bankruptcy.
In this kind of proceeding the bankrupt company basically files bankruptcy on all of its debts, but says that it wants to stay in business and keep operating. This kind of bankruptcy gives the company the ability to create a payment plan for all of the claims against it (and that would include the consumer's claim) while they continue to do business and struggle to survive. The consumer would have to file a claim again, in a fashion similar to what they would do in a Chapter 7 bankruptcy. The difference is that the consumer might have a slightly better chance of getting something out of a Chapter 11 bankruptcy proceeding because eventually the bankrupt company must explain to the bankruptcy court how it will pay off all the debt it has and that could end up being "pennies on the dollar" over several years. This kind of bankruptcy can be extremely complicated and often the bankrupt company can classify different kinds of debt and treat them differently. The bottom line to the consumer is that a Chapter 11 bankruptcy means they may get paid very little if they are lucky and they may get nothing at all. Frankly, some companies file a Chapter 11 bankruptcy just so they can liquidate the company and shut it down in an orderly way.
The filing of any kind of business bankruptcy is bad news for consumers. They lose all of their rights, they can no longer file any kind of lawsuit or continue fighting any kind of lawsuit against the bankrupt company, and they end up filing a claim in bankruptcy court and hope that they might get something out of it and often they get either nothing at all.
Many companies go out of business without ever filing a bankruptcy of any type. They simply close the doors when the money runs out. In that situation, it is very difficult to recover anything at all.
All of these are very significant risks that consumer have to consider in hard economic times. If you're trying to settle a lemon law claim with a manufacturer, you may want to take less in order to get it now and be sure you get something. You just never know ...
If you've got a lemon motor vehicle and you need help settling your case quickly, call us right now, 1-888-331-6422 Toll Free, or email us right now for fast help. We've been settling lemon law claims since 1978. We know how to get your money back. Fast.
Burdge Law Office
Because life's too short to put up with a lemon.