Case Study: Bankruptcy encourages settlement of lawsuit

Using chapter 13 bankruptcy to settle your business lawsuitFor the past 5 years, Ken has been operating Convenient Car Care as a sole proprietor. He bought the business from Gary after working for him for 10 years.

The purchase contract required Ken to pay Gary $1,000 per month plus 5% of the shop’s gross receipts for 7 years. Ken also agreed to provide accurate monthly sales records to justify the 5% he was paying Gary.

The business’ gross receipts took a big hit when another repair shop opened around the corner. Ken fell behind on his payments to Gary, who became angry fearing that he could lose the stream of income he’d counted on receiving from the sale of his business. He started assuming that Ken was not being honest with him and accused him of producing falsified receipts to reduce the monthly payments. Ken adamantly denied the accusations.

The following year, the two men tried unsuccessfully, first by themselves and then through their attorneys, to resolve their differences.

Gary later filed a lawsuit against Ken for the missed payments. Ken could not afford to fight the litigation but desperately wanted to hang onto his business. In spite of being behind, he’d paid more than half of the purchase price to Gary. Plus he’d devoted 15 years of his life to the business – 10 years as an employee and 5 years as a sole proprietor.

But now Ken is scheduled to give his testimony under oath at an upcoming deposition. He has no money to pay his attorney and the state court trial is scheduled to begin two months later. What can he do?

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