QUESTION
If the person I loaned money to is filing for bankruptcy, can I reasonably expect to be paid back?
Asked on Sep 20th, 2012 on Bankruptcy - Colorado
More details to this question:
Last year I bought three shares in a favorite store, the total loan being $3000. We wrote up a contract that states that the shares would be bought back with interest by the end of 2013, for a max buy-back of $3600. At the time, I stated that I would only like my original investment of $3000 back, and I have said this to the store owner in several emails. Earlier this year, the store was forced to close, and through my continuing dialogue with the owner he is likely going to file for Chapter 12 bankruptcy. For tax purposes, he has offered to write me a letter officially stating that the shares will not be able to be bought back so that I can claim it as a loss. However, since the original contract is effective through the end of 2013, I was wondering whether I, as a lender, could opt to "wait it out" through that time to see if his financial situation improves to the point that I might be able to get some of my money back, and if it does not could I then claim the loss on my taxes for 2013. I understand that financial investment in anything is a risk, but I am unfamiliar with bankruptcy law and thus would like an informed opinion.
6 ANSWERS
Criminal Law Attorney serving Fremont, CA
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Steven J. Alpers, A Professional Corporation
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Not if the loan was unsecured. If it was secured you may get payments over time. If it was unsecured you may get nothing.
Answered on Sep 26th, 2012 at 11:15 PM
I can't answer your question as asked because I am not sure what type of Bankruptcy your friend, the store owner, filed. You said it was a Chapter 12 but those are: 11 USC Chapter 12 - ADJUSTMENT OF DEBTS OF A FAMILY FARMER OR FISHERMAN WITH REGULAR ANNUAL INCOMEapter 12, which does not cover "store owners".
Answered on Sep 26th, 2012 at 12:50 AM
It is illegal and prohibited by law to try to to collect debt after bankruptcy.
Answered on Sep 25th, 2012 at 8:12 PM
Your facts raise a lot of questions that can't be answered here. One thing that needs looked at, though, is what your status actually is. Since you bought shares, subject to repurchase, it may be that you are not a creditor but rather an owner, which would change everything. You need an experienced bankruptcy attorney to look at all your paperwork.
Answered on Sep 24th, 2012 at 11:22 PM
Bankruptcy Attorney serving Seattle, WA
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The Law Office of Marc S. Stern
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Bankruptcy means exactly that. It is unlikely that you will ever be paid back. You mentioned "shares." Was this some sort of stock purchase? If so, you may have securities violations that could result in a nondischargeable debt. You need to take the documents to a competent lawyer for review.
Answered on Sep 24th, 2012 at 10:25 PM
Daniel James Wilson
As an unsecured creditor you are very unlikely to get anything.
Answered on Sep 24th, 2012 at 7:55 PM