Dissolution of Company Ruled as Malicious

August 19th, 2009 by Reed Allmand

In the bankruptcy case of (Blackburn, Richard and Victoria; In re (Muscarello v. Blackburn)), the bankruptcy court ruled that the plaintiff’s claims could not be discharged in bankruptcy.

The details of the bankruptcy case:

The debtor-husband formed a consulting company after being laid off from his job as a senior health care consultant at CNA Insurance. The plaintiff purchased an interest in the company and eventually contributed more cash to the business and became a 50 percent owner. Sometime during 2001 and 2002, the plaintiff agreed to provide additional funding to the company in exchange for 10 percent of the company’s gross receipts after certain adjustments. The debtor disputes that this agreement was official; but the bankruptcy court ruled that there was in fact an agreement. But instead of honoring the agreement, the debtor and his wife decided to dissolve the company (without the plaintiff’s knowledge) and formed a new company with the same business plan, assets (the plaintiff’s cash) and customers as the old company. The court found that this was a willful and malicious act and ruled that the plaintiff’s claim for $300,453 plus half of the company’s value ($85,185) was nondischargeable in bankruptcy.

For debtors who are filing bankruptcy with outstanding business disputes this bankruptcy case is extremely important. If a debtor is found to have maliciously caused a loss to a creditor or claimant, those debts may not be discharged in bankruptcy. That’s why it is important to be candid with your bankruptcy attorney about any current or past business dealing that may affect your bankruptcy case. If the bankruptcy attorney is given all of the facts he/she can figure out a sound and effective strategy BEFORE you file bankruptcy.

About Reed Allmand

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Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."

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