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Creditors lose when customers file for bankruptcy relief

September 12, 2010|By ARNOLD PLATOU
  • Michael A. Llewellyn
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o For those buried in debt, bankruptcy is a lifeline

o Bankruptcy filings continue to rise

Let's say you own a furniture store and somebody buys a sofa -- and doesn't have to pay because after making the purchase, he gets bankruptcy relief.

Who could blame you for looking at the consumer and yelling, "That couch is sitting in your living room and I'm not getting paid for it?"

That's a good example of the anger felt by creditors, said Michael A. Llewellyn, a Cumberland, Md., attorney who recently argued his first bankruptcy protest.

Or take the "business deal gone bad" case that Llewellyn pursued at a U.S. Bankruptcy Court hearing earlier this month in Hagerstown.

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Not wanting to betray attorney-client privilege, Llewellyn declined to discuss the exact case, but said it involves "somebody who sold a business to somebody else." He said his client sold a business "and didn't get paid for it."

And now, the attorney said, the person who bought the business is having financial trouble and is seeking protection from his debts.

"Unfortunately, if he gets through the bankruptcy, my client will probably get nothing, or pennies on the dollar," Llewellyn said. "Not good."

The attorney came to Hagerstown to what is called a creditors' meeting, where people who are owed money can confront the debtor and can try to bring out information about him that the bankruptcy trustee didn't know.

"So if you think there's something amiss, it's a great way to bring it up, to ask the debtor questions about their stuff," Llewellyn said.

"If you have a question about 'hey, you're not reporting all your assets' or you have a record of any fraudulent action," the meeting is your opportunity to get that out, he said.

Llewellyn declined to say whether or what information he was trying to get out about the debtor in his client's situation.

In general, he said, a creditor who feels wronged might "want to make the debtor squirm a little bit because what bankruptcy does is let you be debt-free. It does wipe your debts away."

But in a business sale gone bad, "from a creditor's point of view, it's possible they (the new owners) still get to keep the business," he said.

"In the creditor's mind, you stole the business and now, I don't have any legal right to get it back or the money. That's a possibility of that happening."

The seller or the lender can be partly to blame, however, Llewellyn said.

"Of course, on the other hand, you knew that was a risk when you let somebody borrow that" to buy your product or business, he said.

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