Expert: Los Angeles Bankruptcy Lawyer Leon D. Bayer - 2/24/2008

Question
We are suing a builder who abandoned our house construction with more
than $100,000 in overpayments. In pre-trial, he admitted to taking most of
what we trying to recover, but offered to settle for about 5% of the amount to
be paid over time. His attorney threatened that if we continue the case to
trial, the builder will simply declare bankruptcy and we will get nothing (some
payments were made to him personally and not his dba company). Our
question is, if we win a judgement against him, would it definitely be excused
if he files bankruptcy, or if we can show that he intentionally stole from us in
bankruptcy court, could the judgement be exempt from discharge? Our
current attorney doesn't handle bankruptcy cases, so we need some quick
advice to decide if we should press ahead with the suit this week. thank you.

Answer
I am terribly sorry that you are going through this. I am sure you realize there is so much to this story that I don't know about, that the best I can do is raise some questions and give you a flavor of my own thinking.  

So, the defendant threatens to file bankruptcy if he looses, (nothing unusual, defendants always say that). How seriously should you take the threat?

Did anyone bother to make an asset investigation, (including fraudulent asset transfers) before getting involved in the expense and trouble of a lawsuit? If so, you would know how seriously you should take his threat. If you have not done it yet, perhaps there is still time to do so before you throw good money after bad.

Personally, if what you are saying had happened to me, I would not take the 5%, but you and your lawyer have to decide that for yourselves. I would get greater satisfaction in watching the SOB file bankruptcy than I would get from recovering $5,000. Besides, your claim might also result in the guy loosing his contractor's license. Incidentally, have you made a claim against his contractor's bond?

How did he get the $100,000 away from you? You don't say how that happened. Perhaps your bank was negligent in allowing him to draw down from a construction account, and maybe you can sue the bank?  

Chapter 7 bankruptcy does not discharge every kind of debt. If we look at Section 523 of the Bankruptcy Code, it sets forth a laundry list of different types of obligations that are not dischargeable. The best way to understand the likely difference between the dischargeable debts and the non-dischargeable debts are to think of acts committed by the debtor which amount to intentional wrongs (intentional torts). Generally, intentional acts of wrongdoing, such as fraud, are not dischargeable. However, even if you believe that the debt owed to you is non-dischargeable, you still have to jump through hoops and hurdles in the bankruptcy court to prove it!

It is not possible to ever give someone a guarantee that the debt will "definately" be discharged or not. I suggest you buy an hour of time for a consultation with a good local bankruptcy attorney for an evaluation of the dischargeability question.