As an attorney that prosecutes non-payment of forgivable loan claims on behalf of BDs, I find these cases typically go one of two ways. In one case, the departed RR raises a series of frivolous counterclaims to try to get out from paying what is, on its face, usually a clear cut breach of contract and then the RR loses. In other cases, the departed-RR raises a series of frivolous counterclaims to try to get out from paying what is, on its face, usually a clear cut breach of contract claim, loses, AND then declares bankruptcy to try to get the debt owed to the BD discharged.
Bankruptcy is always a risk to any litigation and most firms appreciate that risk when filing a note claim. Sometimes the principle is worth enforcing even if the firm thinks the RR won’t have sufficient funds to satisfy the judgment.
What if, though, the RR tries to make himself eligible for bankruptcy protection by spending at a rate that far exceeds his income and savings levels after an arbitration panel decides against him. Then, when the money is gone, he can declare bankruptcy thumbing his nose at the firm, right? Is the firm left with no recourse?
Saturday morning college football ESPN GameDay host Lee Corso has a famous catch-phrase that applies to this situation.
Not so fast, my friend!
Well, I’m not sure Barclays Capital Inc. would call its ex-RR, Michael Schwartz, a friend, but I think the concept is right.
This week, the 7th Circuit issued a decision affirming the dismissal of Mr. Schawartz’s bankruptcy petition filed after Mr. Schwartz and his wife tried to spend their way into bankruptcy following an adverse arbitration award. The ruling sends a clear signal that manufacturing a bankruptcy to walk away from a forgivable loan won’t work.
We here are particularly happy about the result because the case was handled by Ulmer & Berne partner, Pat King.
Well done Pat!
A full news story of detailing the case and decision can be found here: Chicago Daily Law Bulletin – High living dooms bankruptcy petition