Creditors' Rights/Bankruptcy FAQ
Frequently Asked Questions regarding Creditors Rights/Workouts/Bankruptcy
Frequently Asked Questions regarding creditors' rights, which can cover many different matters related to creditor/debtor issues, including breach of contracts, collection of debts, actions on promissory notes and commercial contracts, ownership or shareholder disputes and bankruptcy representation, to name a few.
- I have a relative or close friend that I am going into business with. Do I really need to have our business relationship reduced to writing?
- I want to file a lawsuit. Do I need an attorney? Can't I do this myself?
- I want to use an attorney, but what if I don't retain the attorney I contacted? Are my conversations protected even if I have contacted a number of attorneys?
- What is alternative dispute resolution?
- What is arbitration and mediation?
- Should I try to settle my dispute instead of litigating my claim?
- I can't settle my case. If I file suit, what happens if I win, but I can't collect?
- I want to file a lawsuit, but what if the defendant files for bankruptcy?
- I have a judgment and the defendant has not filed for bankruptcy, but I am not being paid. What can I do to collect?
- I am a landlord. My tenant isn't paying me. Why can't I just change the locks on the leased premises?
I have a relative or close friend that I am going into business with. Do I really need to have our business relationship reduced to writing?
Yes, most definitely. An oral agreement, even with a close friend or relative, can spawn expensive and time consuming litigation if a dispute arises and there is be uncertainty as to what each party understands the agreement to be. This can happen, whether a relative or friend is involved, and it is more likely to happen with an oral as opposed to a written agreement. Always consider having the agreement reduced to writing. Whenever possible, do so. You may save yourself a tremendous amount of time and expense.
If your claim is a small claim, one under $8,000, you may wish to prosecute the suit yourself before the District Magistrate Judge. However, if you chose to file your suit in the Court of Common Pleas, or if damages are over $8,000, you should at least consult an attorney. At the very least, you will need an attorney to guide you through the pleading process. In most of these cases, you will need an attorney and it will be wise to get one.
I want to use an attorney, but what if I don't retain the attorney I contacted? Are my conversations protected even if I have contacted a number of attorneys?
As long as you are consulting an attorney for purposes of obtaining legal advice, your communications with the attorney are protected by the attorney/client privilege even though you may not hire the attorney.
ADR is another method for resolving a dispute, other than filing a lawsuit. ADR encompasses both arbitration and mediation.
Arbitration is an ADR procedure that is usually binding. In arbitration, the parties agree to resolve their dispute outside the court system, using an arbitrator instead.
Mediation is an ADR procedure which is non-binding and takes place using a mediator who is normally chosen by the parties. The mediator will try to settle the case. If the case settles, the settlement is normally reduced to writing which is normally binding on the parties.
For a more detailed explanation, visit Understanding Arbiration vs. Mediation.
If you can settle a case, settlement is always preferable to litigation. Although every settlement generally involves some compromise, the advantage is that the parties have certainty as to the result. Whereas, in litigation, you can't be sure of the outcome even in the best of cases. Never be afraid to litigate, but if you can, settle the matter as it will end the dispute, saving you time and money along with physical, emotional and psychological expense.
A very practical aspect in contemplating any litigation is whether the defendant has assets from which you can collect your judgment. Collectability should always be considered before instituting a lawsuit. You may have good liability and good damages in your case. However, if the defendant has no assets, you could be expending a good deal of expense, time, etc. for nothing. Whenever possible, you should consider whether the potential defendant has assets before you file suit. Sometimes this can't be ascertained. However, the question should be considered.
Just because the defendant files for bankruptcy this does not mean that you as the plaintiff/creditor has no remedies. Granted, most Chapter 7 cases will result in no distribution to creditors. However, at times, there may be assets from which there may be a distribution. This can also happen in a Chapter 11 case, i.e., a business reorganization, and in a Chapter 13 case, i.e., a consumer reorganization.
In addition, if you are a landlord or a secured creditor, there are various remedies that may be available to you that may allow you to gain possession of your leasehold premises or your collateral.
Just because a bankruptcy is filed, this does not mean that the situation is hopeless. You should consult an attorney if a bankruptcy is filed by the defendant/debtor.
I have a judgment and the defendant has not filed for bankruptcy, but I am not being paid. What can I do to collect?
There are various options available. First, it should be noted that your judgment constitutes a lien on any real estate that is owned in the defendant's own name in the county in which the judgment is filed. If the defendant is seeking a loan or the defendant wishes to sell his real estate, your judgment lien may result in your getting paid; otherwise, the loan may not be granted or the real estate sold.
In addition, with a judgment, you can garnish the defendant's bank account or sell the defendant's personal or real property.
If you are not sure of what assets the defendant has, you can do a deposition of the defendant to ascertain what assets the defendant has and where they are located.
I am a landlord. My tenant isn't paying me. Why can't I just change the locks on the leased premises?
You would be surprised at how many times this question is asked. However, self-help is not allowed as a remedy for a landlord in Pennsylvania. If you use self-help, you are facing a potential lawsuit by the tenant. Depending on the type of lease, e.g., commercial or residential, you have various legal remedies available to you. For example, if the lease is a commercial lease, you may have a confession of judgment clause in your lease which may allow you to confess judgment for rent and/or for possession without the necessity of filing suit. However, such clauses cannot be used in a residential lease. If you are not sure what you should do, you should consult an attorney. You may also want to consult our landlord-tenant page.