As litigators know all too well, a bankruptcy filing by a defendant can have devastating consequences for the plaintiff. The plaintiff’s disappointment often comes in one of several scenarios. In the first, the plaintiff works hard to obtain a judgment, only to be faced with the debtor’s bankruptcy filing when attempting to collect.
The second scenario is where the plaintiff is marching toward trial, and the defendant’s bankruptcy filing and resulting automatic stay prevent the case from proceeding. In the first scenario, the plaintiff will take its judgment into the bankruptcy proceeding and, most likely, be treated as an unsecured creditor with a claim in the amount of the judgment. In the second scenario, the plaintiff will usually proceed in the claim process in the bankruptcy court and attempt to have the desired amount of damages treated as an allowed claim in the bankruptcy case.
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