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How to avoid losing a judgment through bankruptcy

In many cases, the impetus behind filing a lawsuit is collecting on a judgment to be awarded by the court. In some instances, collecting the judgment is not an issue, as the offending company has the means to pay (or at least their insurance company does). However, there may be a chance that the insurer may not cover the company, thus leaving it without the means to pay a potential judgment. This may cause the company to seek bankruptcy protection.

If this conjures up memories of the demise of the Great Benefit Life Insurance Company in “The Rainmaker” you understand the possibility of a judgment being wiped away through bankruptcy. However, there is a way to protect a judgment from being lost; and this post will give a brief explanation.

Under the U.S. Bankruptcy Code, damages awarded as a result of fraud or intentional misrepresentation are excluded from discharge. This means that they cannot be set aside by a bankruptcy court. So if you are suing a company solely on a breach of contract claim, it may be discharged as a common civil judgment. As such, it may be worth considering whether a related fraud or misrepresentation claim can be justified as well. If it can be proven that the breach was directly related to fraud, the debt emanating from it could be held to be non-dischargeable.

The preceding is not legal advice. It is prudent to discuss your situation with an experienced attorney so that you can make an informed decision about your case. 

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