Thursday, May 11, 2023

People Love to Threaten Bankruptcy

 Above the Law blog had an article written by Jordan Rothman titled "People Love to Threaten Bankruptcy During Litigation", the article can be found at

Jordan is correct in that many defendants in litigation threaten bankruptcy to obtain a favorable settlement. However, in my experience as a bankruptcy practitioner, many parties that threaten bankruptcy often file and those cases are generally filed as a chapter 7 liquidation, where after the payment of Bankruptcy Trustee fees and expenses, there is little money to distribute to unsecured creditors.

In fact, when the threat to file is made by an experienced bankruptcy attorney, it has an even greater impact and we have settled many cases with that approach. In fact, we will often prepare a draft of a bankruptcy petition and send it to an adversary for settlement purposes only, showing what the creditor would receive in a bankruptcy filing (we call this a "pro forma bankruptcy petition").


Alternatively, we are often retained by litigators or their clients to determine what their client would receive if their adversary filed for bankruptcy-we call this a "back of the envelope calculation".

Parties wishing to discuss these issues are encouraged to contact Jim Shenwick, Esq   917 363 3391



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