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Hey, There Are Only a Few Ways This Lawsuit Will Shake Out, You Know?

By Joseph McDaniel, Esq.

I recently talked to a nice guy being sued by a S&L for a million. Or a Bank for five million.

Doesn't really matter; the plot's the same.

See, there's a commercially reasonable solution here, and the Bank (or S&L) really ought to want to change this default into a performing loan, because that's in the bank's best interest. Otherwise, the bank has to reserve against the doubtful account, and that's bad for the bank, and for the bank's investors.

But there are bank lawyers involved now! And their interest is a little different, and it involves billable hours.

Hey, everybody's gotta eat, right?

So I told the nice guy to go back to the bank and to pitch 'em on the commercially reasonable deal that results in a performing loan, and told him to be persistent. It's in the best interests of the bank and the bank investors, after all.

And I shipped him over to a crack litigator, who'll ask for an extension while the talking is going on (no need to rack up more legal fees, after all), and if that doesn't work, there is a counterclaim in that pile someplace.

And then the lender gets a third chance to settle! After it gets to re-calibrate the risk-benefit analysis.

And then, if the litigator fails to get a settlement, I get to come in as the Angel of Death, and explain that these are the bankruptcy schedules, and it appears to my uneducated eye that the bank gets less, slower, through the filing than through the proposed deal on the table.

And that often (but not always) works pretty well.

If not, well, we tried.

And if it doesn't work the way I would prefer, then we go to Plan B: I run everybody through the car wash down at the Bankruptcy Court and they all drive away, enjoying life after bankruptcy!

p.s. the threat of bankruptcy doesn't work very well at all; nobody is afraid of your bankruptcy filing. There's just a discussion, with multiple columns, and different numbers in the various columns. And if people want to be economically rational, there's a settlement. If they're thinking with their Lizard Brains, which are not smart enough to use a pocket calculator, then there's no settlement.

And instead there's a bankruptcy.

And I know you know this, but I sometimes work much, much harder to give away someone else's money than you would think I'd have to work, you know?

Full post as published by Arizona Bankruptcy Attorney Blog on October 29, 2010 (boomark / email).