lawsuit

Planning bankruptcy to stop a lawsuit

Question from Quora, asked by Kayee Tong: Is it possible to rack up debt to reduce the chance of lawsuits by threatening default and bankruptcy protection to a potential lawsuit?

Here is the answer from Victor Fong, Licensed Insolvency Trustee in Toronto, Canada

I’m a Licensed Insolvency Trustee operating in Canada, so what follows is my perspective from the standpoint of Canadian bankruptcy law.

If you are accumulating debt when no intent to repay it (i.e., you’re ready to proceed with a bankruptcy filing), then you’re committing de facto fraud.

What you have to understand that filing for personal bankruptcy in and of itself does not make the debt go away. Your debt goes away only when you are discharged from your debts. And a number of parties can intervene to prevent you from being discharged from your debts.

For example, your bankruptcy trustee or your creditors can have you examined in bankruptcy court and asked such questions (under oath) as where the money was spent. If you cannot account for where the money you borrowed was spent or the court determines that the money you borrowed was spent frivolously, this will cause you a lot of problems in obtaining your discharge from bankruptcy.

Upon reviewing evidence of your conduct before and during your bankruptcy, your discharge could be outright refused by the bankruptcy court or it could be subject to conditions such as paying a monetary sum to your creditors via the trustee.

So what you’re contemplating is a really, really bad idea.

I see that you’re a medical professional. Is the lawsuit related to your medical practice? I’m assuming that you have professional liability insurance that would deal with such a lawsuit?

You should seek confidential professional advice from a bankruptcy attorney. And I don’t think it’s a smart idea to post such a question using your actual profile if you’re going to pursue this strategy.