Can someone sell a business they bought from me and go bankrupt before paying?

I Sold my business in 2011, for a very small amount. The buyer signed a promissory note, and shortly after the purchase stopped making payments. I filed a small claim to try to recoup some of my money, but now the person who owes me money is claiming they will sell the business, collect the money, and file bankruptcy to avoid having to make good on our promissory note. Can they do this? What options do I have?

Bellevue, WA -

Attorney Answers (4)

Michael Charles Doland

Michael Charles Doland

Business Attorney - Los Angeles, CA
Answered

Try to get them to say it in writing including email. Then say, nice threat. Go ahead, and I hope you enjoy prison for bankruptcy fraud. If you had used a lawyer you would have been advised to have a security agreement so that if a payment was missed you would get your business back.

Not using an attorney is a false economy. It only looks like one is saving money.

The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may... more
Andrew Endicott Schrafel

Andrew Endicott Schrafel

Contracts / Agreements Lawyer - Floral Park, NY
Answered

They can do that, but it is likely illegal. That is not how bankruptcy works.

Your best option is to contact an attorney in your area and go over all the facts with them to get an opinion on how to proceed.

Lisa Marie Blasser

Lisa Marie Blasser

Contracts / Agreements Lawyer - Diamond Bar, CA
Answered

Sorry you are dealing with this. That is illegal -- case ripe for bankruptcy fraud if you can get this in writing. I would hire an attorney to protect your interests and advise you how to handle it from this point forward. Does the note exclude bankruptcy as a defense to failure to pay or did you sign any other agreement regarding the sale that would impact your options in the event the buyer failed to pay? Best of luck to you.

The above information does not constitute legal advice and does not form the basis of an attorney-client... more
David Eugene Mullis

David Eugene Mullis

Business Attorney - Valdosta, GA
Answered

Generally speaking, if you sold the business with a note but no security agreement then you probably will be limited to suing for money damages under the note. The suit should be simple as it is based upon a promissory note which is an unconditional promise to pay. It is very difficult to defend. If you get a judgment and they file bankruptcy or if they file for bankruptcy protection prior to judgment, then you can inform the Trustee of their assertion that the business is an asset with value and you may be able to file an adversary proceeding objecting to the discharge of this debt based upon their expressed fraudulent intent. It doesn't sound like you have much to lose by continuing on with your lawsuit unless they are offering to begin making payments to you. At least if you can get a judgment, you have the chance that they have assets that you could levy or they may have too many assets to file a bankruptcy. You definitely should consult a local attorney about this matter.

This answer expresses only general statements about bankruptcy and/or debt defense and does not constitute advice... more

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