For small businesses, just as for individuals, bankruptcy should dispose of all disputes with their creditors. A discharge under Chapter 7 or confirmation of a payment plan under Chapter 11 marks the end of that journey.
But that does not always keep some sneaky creditors from trying their hand at pursuing the matter in State Court anyway. With a good attorney, one comfortable in both state and federal courts, this should be a short-lived attempt. Our firm has handled several of those cases recently. We obtained a dismissal of the creditor’s case, leaving the business newly out of bankruptcy to finally move on.
How do we do it?
Under Federal Law, discharge (or plan confirmation) has injunctive power against any further proceeding by a creditor against the discharged debtor (so long as the creditor was named in the bankruptcy). This means the creditor in question may not, under federal law, either start or continue a lawsuit, be it in state or federal court. That prohibition is unqualified.
Bankruptcy’s purpose is to offer the honest debtor a fresh start. So discharges must be final, lest there is no new start to be had. State Courts will enforce them. A good attorney will know how to put a quick end to dubious attempts to drag a business down.