• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Brankrupting tort debts?

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

stebbinsd

Member
What is the name of your state (only U.S. law)? Bankruptcy is exclusively federal law.

Suppose I sue an LLC for a huge tort. The damages are huge, so instead of spending the next twenty years with the company's profits garnished, the owners of the LLC liquidate it and start a new company under a new name, but with the same business (for example, instead of John's Grocery, LLC, it becomes John's Food, LLC).

I'm reading in a business law textbook that, whan Chapter 7 Bankruptcy (the kind he would be filing) is filed, the assets are liquidated, and the debts are paid off in the following order of priority:

1. Secured creditors (those with collateral, such as the mortgage).
2. Costs of liquidating the assets so the following debts can be paid off.
3. Unpaid wages and independant contractor fees.
4. Some claims of farmers & fishermen.
5. Refund of security deposits.
6. Taxes.
8. General, unsecured creditors (such as stockholders and bondholders).

It doesn't say any mention of tort debts, so where do tort plaintiffs stand in that list of priority, or are they completely SOL? Even if tort debts can't be bankrupted, just like stafford loans, how can you force an entity that doesn't legally exist to pay anyone anything? Add that to the fact that, unless the LLC-owners co-sign for the contract debts, they have nothing to loose, personally.

What would be a person's recourse (if any) in that?
 


las365

Senior Member
Originally Posted by tranquility
The general theory here is that it's better for students to do their own homework.
**A: yes I agree.
I agree, and would go a step further to say it's even better to do your own homework and to know what you are talking about before attempting to present yourself as an authority and answer legal questions on an advice forum.
 

stebbinsd

Member
The general theory here is that it's better for students to do their own homework.
And who said this had anything to do with homework? Oh yeah, that's right. YOU said it!

This is something I'm not going to be tested on, so whether I know it or not is going to be irrelevant to my grade in the class. Therefore, you're not doing my homework because there's no homework for you to do!

Moron.
 

publius

Member
What state are you in? Bankruptcy is exclusively federal law, but that's not the only thing at issue here. If you get a judgment against one LLC and the same owners create a new one carrying on the same business, you may be able to enforce the judgment against the new LLC under a theory of successor liability, arguing that the new LLC is a "mere continuation" of the old one or some similar theory.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top