Breach of contract and fraud suit has been going on for three years, defendant is now threatening to file bankruptcy to keep from going to court and paying what he owes is this legal?
If you have a claim for fraud, then the action MAY not be dischargeable in bankruptcy. But, you the debtor must act if the party files bankruptcy.
As you may know the filing of a bankruptcy petition operates to stay automatically certain creditor actions and proceedings. The automatic stay is effective against all creditors and stays the following acts: the commencement or continuation of any civil action, any attempts at collection which would include the attorney’s attempt to collect fees owed under a deferred payment arrangement, the enforcement of a claim, judgment, or lien that arose or obtained against the debtor before the commencement of the bankruptcy case. The automatic stay begins on the filing of the bankruptcy petition. U.S.C section 362(a).
A bankruptcy discharge has the effect of releasing the debtor from personal liability for all of the debtor's pre-petition debts that are properly listed in the appropriate bankruptcy schedules and all allowed claims except any debt of the type specified as non-dischargeable by 11 U.S.C section 53A. The exceptions to discharge covered in that section which are germane to your claim are found in subsection 2(A) “for money, property…to the extent obtained by - false pretenses, a false representation, or actual fraud.”
Even those categories will be discharged unless the creditor takes affirmative action and files an adversary complaint within the required time period to have the bankruptcy court determine the dischargability of the debt. The creditor must file a complaint to determine the dischargability of a debt not later than 60 days after the first date set for the meeting of creditors. No general right to attorneys fees exist under the Bankruptcy Code. However, a prevailing party in a bankruptcy proceeding may be entitled to an award of attorney’s fees in accordance with applicable state law if state law governs the substantive issues raised in the proceedings. See for example In Re Baroff (9th Circuit 1996) 105 F.3d 439, 441 (Bankruptcy court applied the California contract law in granting summary judgment in dischargability action and should have applied California law in its disposition of debtor’s motion for fees.)
If your lawyer is not familiar with bankruptcy laws and has not represented creditors in bankruptcy proceedings you need to consult a lawyer who is familiar with the issues. Good luck!
Unless you can convince the bankruptcy court that you possess more authority than the United States Congress, you cannot prevent this individual from seeking debtor’s relief under the Federal Bankruptcy Code!
If a petition in bankruptcy is filed, your sole recourse is to timely file and document a creditor’s claim and perhaps attempt to prove that your claim is one that is not subject to discharge under the provisions of Title 11 United States Code Section 523.
