There Are Consequences In Failing To Compromise In Bankruptcy

Make no mistake about it. If you have a disputed claim hanging over your head, sometimes bankruptcy can put you in the driver’s seat. If you are not the debtor and a defendant in some action filed in bankruptcy, maybe you should think twice about not compromising or settling your case. Litigation is unpredictable. Just because you feel slighted by the fact someone filed bankruptcy is no excuse to resolve a dispute.

Case in point is In re Martnkim Dining, LLC, d/b/a Dos Rios Restaurant filed in the Western District of Texas. Here, the Debtors, who filed bankruptcy, brought an adversary proceeding (similar to a lawsuit but filed in the bankruptcy court) against the people from whom they had purchased their restaurant believing these individuals had committed civil fraud and had provided them false financial statements in the sale of the restaurant.

The Defendants pushed forward. They refused the settled. The Bankruptcy Court ultimately found for the Defendants, finding that they did not engage in fraud in the sale of the restaurant to the Debtors. However, the Court discovered the Defendant’s unusual accounting practices, in which an estimated $100,000.00 in cash paid to them while they owned the restaurant had been diverted to their personal account, which they neither reported to the IRS nor did they pay sales tax on the money to the State of Texas.

So, out of the frying pan and into the fire these Defendants jump, probably finding themselves in more trouble, than if they had tried to settle this case with the Debtors.