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My corp. filed for chapter 11 was liquidated and dissolved but we are sill being pursued by a creditor. What should I do now?

Los Angeles, CA |

My corp. was sued pre-petiton. Then the corp. filed Chapter 11 and the trustee issued a report of no distribution and the company was dissolved, keeping in mind there was no discharge. Now the pre-petition claim is attempting to move forward. The individual shareholders are not parties to the lawsuit. I don't want a judgment against the corp. that can be converted to a judgment against the individuals, though alter ego is unlikely and there are no alter ego claims. Should I do anything? Can I make use of the tatement of no assets somehow or is my company still stuck in the lawsuit.

Correction, it filed for CHAPTER 7 NOT 11. CHAPTER 7

Attorney Answers 5


  1. A judgement can only be obtained against the named defendant. judgement can not be converted to another unnamed defendant. In your case, only the corp is being sued, the corp filed bankruptcy. file notice with the civil court about the bankruptcy filing.


  2. If the corporation was the only entity liable on the debt, then you have nothing to worry about. The corporation no longer exists ... if the creditor wishes to sue a non-existent corporation, let it. A judgment against the corporation cannot be "converted to a judgment against the individuals".


  3. The creditor may have some difficulty in litigation against a corporation that filed chapter proceedings, because legal actions appear stayed, the creditor would have to petition the bankruptcy court to proceed in another court, and a suggestion of bankruptcy filed in another proceeding may have the effect of freezing it until the bankruptcy court takes action.
    Good luck.

    General legal advice is offered for educational purposes only. A consultation with a qualified attorney is required to determine specific legal advice as to your situation and applicable law. We are a debt relief agency and we help people file for relief under the bankruptcy laws.


  4. The RND does not mean the case is closed. That involves a separate order. The stay persists until relief is granted or the case is closed. Any cause of action that the pursuing creditor attempts to invoke seeking to collect from "individuals" ( I presume you are referring to insiders) as transferees or that otherwise emanates from corporate liability is an asset of the corporation's bankruptcy estate and belongs to the trustee. If the creditors get a judgement against the entity and then attempt to pursue any ancillary recovery, you should have your counsel notify the trustee (even if the case has been closed). The standing to bring such actions can be returned to a trustee in some instances, and can often be settled for more favorable terms.

    THIS INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. THERE ARE OFTEN ADDITIONAL FACTS AND CIRCUMSTANCES THAT, IF KNOWN TO THE ATTORNEY, MAY AFFECT OR MODIFY THEIR ADVICE TO YOU. IT IS ALWAYS BEST TO RELY ON ADVICE PROVIDED IN THE CONTEXT OF A FULL CONSULTATION AND WITH COUNSEL WHO IS BOARD CERTIFIED, OR HAS SUBSTANTIAL CREDENTIALS IN THE FIELD OF INQUIRY


  5. Assuming the case has been closed, and this is a simple collections action, the creditor is free to pursue his remedies against the corporation. If there were listed corporate assets that the chapter 7 Trustee did not liquidate, the creditor can use a judgment to levy against them.
    The biggest caveat I can state is making sure the corporation is the only party to the lawsuit. IF an individual is named and FAILS TO FILE A RESPONSE, a judgment can be taken against them by default, whether or not there might be real liability. At best, they would then have to seek to set aside the default. At worst they would be subject to collection under the judgment.

    This response is not intended as legal advice. You may need to consult your own attorney to obtain a more specific answer.

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