Strategies Employed In Bankruptcy Litigation

An Overview Of Strategies Employed In Bankruptcy Litigation

There are two general categories of strategies employed in bankruptcy litigation. The first is a general approach that could be used in any business or commercial litigation. The second is tailored especially to litigation as it pertains to bankruptcy.

The general approach includes the following:

Conducting discovery

This is obtaining information from the other party about the dispute, facts, and issues presented in the bankruptcy and the defenses. Conducting discovery can create difficulty for the other side which may trigger a desire to resolve the case. This type of discovery could include asking for materials the other side believes to be confidential, proprietary, or simply matters the other parties do not wish to share. This may entice some sort of resolution in certain situations.

Motion practice

This includes filing certain motions and dealing with procedural or substantive issues. It may result in a dismissal or judgment in an adversary proceeding or bankruptcy litigation. The likelihood of success may further help bring about a settlement or resolution.

Normal settlement resolutions and discussions

This is when the parties involved evaluate the likelihood of success, the cost of pursuing or defending the claims, and the amount in dispute. After conducting this analysis, the parties may work to reach a reasonable value of the claims for each party.

A strategy available in bankruptcy that is not applicable in other business or commercial litigation is the ability to negotiate with the creditors on the other side. This can sometimes provide slightly better treatment than otherwise received. Whether it be a Chapter 7, Chapter 13, or Chapter 11 case, bankruptcy creates a framework in which all creditors are dealt with in a particular manner. This framework informs creditors’ rights in the case.

In Chapter 7 cases, the ability to negotiate is slightly difficult since the framework is somewhat rigid. As such, there is less ability to deal with creditors and develop a creative solution. Conversely, Chapter 13 and 11 cases, involving a payment plan, allow for the flexibility to create inventive ways to resolve a dispute. For example, it may enable the creditor to be in a different class of creditors in Chapter 11, recover something different in a Chapter 11 or a Chapter 13 case, or provide some sort of security for the debt that might not otherwise be possible in a Chapter 11 or 13 case.

Alternative Dispute Resolution

Alternative dispute resolution denotes topics or subjects involving resolution methods that have arisen over the last 30 to 40 years outside the litigation context. Typically for litigation, the parties would file a claim, obtain discovery, go to trial, try their claims, then the court would declare a winner. Alternative dispute resolution involves other methods of resolving the dispute, such as mediation or arbitration. It has become more common lately. In almost every case today, parties seek confidential mediation to find a negotiated and agreed-upon resolution.

Arbitration, however, typically includes a contract between the parties that specifies that they will arbitrate instead of litigating. The arbitration is conducted in front of a third party or multiple third parties who will play the role of the judge and jury. The parties conduct discovery, but it is typically less involved than with litigation. Ultimately, the arbitrators then make a decision just like the court would.

Settling A Litigated Bankruptcy Outside Of Court

Bankruptcy litigation can be settled outside of court, but there are some caveats. While bankruptcy litigation can be resolved via settlement, mediation, or other outside settlement methods, the parties must have the ultimate settlement approved by the bankruptcy court. This is because the resolution will most likely affect the bankruptcy estate and potentially even the bankruptcy plan, all of which must be approved by the bankruptcy court. Taking this approach can be a part of a strong strategy employed in certain bankruptcy litigation cases.

Bankruptcy Attorneys And Litigation

A crucial part of developing a strong strategy to employ in a bankruptcy litigation is having a skilled lawyer involved in the process. Any bankruptcy attorney could handle bankruptcy litigation, but many do not want to do so.

Many bankruptcy lawyers focus on consumer bankruptcy and have a volume-centered business model. They aim to process as many cases as possible and invest as little time or effort as possible in each case. There is nothing wrong with this model. But these lawyers likely see handling litigation as a “bottleneck” to their workflow since it would take additional time and effort to obtain and receive their client’s discharge and have the client moved out of bankruptcy. Other lawyers simply prefer the transactional nature of the bankruptcy practice and do not enjoy dealing with litigation.

Skills To Consider In A Bankruptcy Litigation Lawyer

Skills required for litigation are essentially the same as those needed for business and commercial litigation outside the bankruptcy context. On top of this, a thorough understanding of the Bankruptcy Code and how the bankruptcy system works is critical. This will pay dividends when valuing a bankruptcy claim, determining whether it is worth pursuing, and resolving it well. In addition, understanding the bankruptcy system allows a litigator to develop creative alternatives and resolutions, as well as the ability to structure and tailor the litigation and its resolution to the bankruptcy process.

The Clark Law Firm Difference

We have extensive experience in the commercial, business, and bankruptcy world. Over the last 20 years, we have helped countless clients in several ways, including helping borrowers through the 2008 housing crisis and real estate issues for years. As a result, our firm has a wide-ranging and extensive base on which to discuss, litigate, and resolve bankruptcy litigation, allowing for the best resolution possible for our client.

For more information on Strategies Employed In Bankruptcy Litigation, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (205) 506-3354 today.