When you hear a case settled, it means the parties entered into a settlement agreement. The agreement should be put in writing, with its terms clearly spelled out. Where the plaintiff (the party which brought the lawsuit) is going to be paid by the other side (called the defendant), the plaintiff's attorney can – in certain circumstances, and where the defendant is willing – attempt to draft a bankruptcy proof settlement agreement, i.e., one which calls for no payments to be wiped out should the defendant file for bankruptcy.
Statistics show why you may want to try for a bankruptcy proof settlement. Bankruptcy filings are up 27% over the prior year, according to a news release from the Administrative Office of the U.S. Courts. This is the highest it has ever been since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect.
Once a person files bankruptcy, their creditors -- the folks to whom they owe money -- are left with one recourse: they can go after the monies in the bankruptcy. They cannot look for repayment in another court. Each of the creditors will be fighting to get their share of the debtor's monies. You want to make sure your settlement puts you in line ahead of as many creditors as possible.
The following are some steps you can take to do so:
1. If possible, structure your settlement so that the funds used for payments are borrowed from a third-party;
2. Where applicable, have the defendant admit in the settlement agreement to specific allegations of fraud or willful and malicious injury. If you can get that kind of language in the agreement, the settlement monies should be considered beyond the reach of a bankruptcy;
3. Have the settlement agreement cite to the amount of the original claim, or include a “springing” provision, so there is no dispute regarding the size of the claim, should the defendant file for bankruptcy; and
4. As part of the settlement agreement, call for a waiver of the automatic stay. The automatic stay is what bars a creditor from suing a debtor in a court other than a bankruptcy court. Calling for it to be waived will help you get out of the confines of the defendant's bankruptcy, so you can go after your settlement monies in another court.
The Axelrod Firm, PC helps individuals, businesses and non-profit organizations with their commercial, real estate and employment issues. Sheryl L. Axelrod is the owner of the three attorney state-certified woman owned law firm. While only 5% of lawyers per jurisdiction are recognized by their fellow lawyers as Super Lawyers, she has been recognized as a Super Lawyer for the third year in a row. She is the President of the Temple Law Alumni Association (TLAA), its 4th female President in its over 95 year history.
