Incorporation being sued, do settlements survive bankruptcy?

April 22nd, 2015 by Questions

If a small but incorporated business gets targeted in a scam for a fake (irrelevant fake or not I realize) injury lawsuit for over $100,000… can that incorporated business go bankrupt if they lose and don’t have any assets anyway? Or do court settlements survive bankruptcy? And would the debt just be pushed over to the director? If so can they go bankrupt? This is an unfortunate yet scary situation. Thank you.


One Response to “Incorporation being sued, do settlements survive bankruptcy?”

, Doug Stuive, CA | Trustee | CIRP said:

We are assuming that your incorporated business does not have insurance that would help to cover the cost of this type of lawsuit. The corporation can file bankruptcy, as long as the corporation meets the definition of insolvency, ie, it is unable to pay its debts and or its debts exceed it’s assets. You should speak to a licensed trustee to discuss this situation to determine whether the benefit of filing a corporate bankruptcy exceeds the costs.

The judgement or court order will specify who the defendants are in the proceeding. If you are personally listed as a defendant along with the corporation then this debt would be your responsibility as well. A personal bankruptcy may be possible to eliminate the debt, provided the debt is not one that survives bankruptcy. Furthermore, if the debt does not survive bankruptcy, the creditors can oppose your discharge which can make your bankruptcy last longer and require a court hearing before the Registrar in Bankruptcy. That does not mean that they would be successful in preventing a Absolute Discharge but it should be noted as a possibility. We recommend that you seek legal advice and also advice from a licensed trustee. A copy of the judgement should be brought to these meetings so that appropriate advice can be given

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