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  1. #1
    Join Date
    Jul 2018
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    Default Is It Worthwhile to Sue an Insolvent LLC

    My question involves collection proceedings in the State of: Ohio

    Contract signed for a home addition in June, 2017 with a construction company LLC. Work stopped in Dec. 2017 due to cold weather. Informed by LLC owner in April, 2018 that the company is going into bankruptcy. About $46,000 in payments to company in excess of work performed. (stupidity acknowledged)

    To date, bankruptcy has not been filed, per the firm's bankruptcy lawyer. Law firm confirmed it is business Chapter 7 they are going for.

    Assuming bankruptcy is not filed soon (or ever): Would it make sense to file a breach of contract lawsuit, considering the LLC is probably insolvent and I would likely get little to nothing out of it? But could a lawsuit be beneficial for potential future actions? It seem like at least I could get some insight to the accounting on my project and a quantification of my loss through a lawsuit.

    There are potentially elements of fraud that could be directed to the LLC owner personally. (He was arrested in May for another project for which he allegedly did no work, hard to believe he would fail the "just one nail, no jail test")

    I would not be surprised if the LLC owner ends up filing personal Chapter 7 eventually which would further eliminate any chance for payment.

    I did talk to a lawyer early in this case; he was not encouraging about a good outcome.

    Thanks

  2. #2
    Join Date
    Sep 2010
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    18,053

    Default Re: Is It Worthwhile to Sue a (Probably) Insolvent LLC

    At $46,000 you're way outside the realm of small claims and probably would be best handled with an attorney. At the face of what you are saying, you will end up being an unsecured creditor and likely won't get anything coming out of the bankruptcy judgement or not.

    If the LLC is a one man show, you can almost guarantee that he's going to also file personal bankruptcy. A lot of the LLC protections likely are going to be invalidated.

  3. #3
    Join Date
    Mar 2013
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    15,776

    Default Re: Is It Worthwhile to Sue a (Probably) Insolvent LLC

    Quote Quoting Ohio1803
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    To date, bankruptcy has not been filed, per the firm's bankruptcy lawyer. Law firm confirmed it is business Chapter 7 they are going for.
    My guess is that he is deferring bankruptcy because his creditors aren't forcing him into bankruptcy by suing him.

    He's probably living off all that money and continuing business as usual.

    Creditors, like you, are afraid to sue or don't want to incur the costs of a lawsuit because of the threat of his bankruptcy and he's got a bankruptcy lawyer (who isn't costing very much) putting a face to that threat.

    As long as you and other creditors hold back he continues business as usual and thumbs his nose at all the creditors.

    As soon as one creditor hits him with a large lawsuit against him (pierce the corporate veil) and his company he will have no choice but to file bankruptcy and lose everything.

    If you don't want to be the first one out the gate, you kiss your money goodbye. You've lost it anyway, but forcing him into bankruptcy might give you some satisfaction.

  4. #4
    Join Date
    Jul 2018
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    160

    Default Re: Is It Worthwhile to Sue a (Probably) Insolvent LLC

    Quote Quoting Ohio1803
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    Assuming bankruptcy is not filed soon (or ever): Would it make sense to file a breach of contract lawsuit, considering the LLC is probably insolvent and I would likely get little to nothing out of it?
    That largely depends on the likelihood that the bankruptcy/insolvency statements are bulls**t. You'd probably feel like an idiot if you didn't bother suing and later found out that the company continued to operate successfully.


    Quote Quoting Ohio1803
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    could a lawsuit be beneficial for potential future actions?
    Not sure what you're contemplating here. Nothing springs to mind.


    Quote Quoting Ohio1803
    View Post
    It seem like at least I could get some insight to the accounting on my project and a quantification of my loss through a lawsuit.
    Seems to me you already have a quantification of your loss. Right? As far as "insight [into] the accounting on [your] project," of what benefit would that be? Also, whether you can get any discovery depends on whether your lawsuit forces the company into BK or whether the company declines to participate in discovery.

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