Bad Bankruptcy

Most people think of bankruptcy as a shield, used by those in need for protection from creditors and debt. This is bankruptcy's truest application and how it was always meant to be used by debtors and lawyers.
 
It was never intended to be used as a sword, a weapon to effect third parties and their position. So, it should come to no one's surprise that a law firm that tried to use bankruptcy as a sword got in hot water over its misapplication.
 
In a Machiavellian move, a New York law firm pushed a former client into bankruptcy in order to gain leverage on the same client in a separate law suit, in the hopes that this move would force a settlement. The other lawsuit was over a dispute in legal fees that totaled $200,000.
 
This was certainly an interesting tactic, however it couldn't be a more inappropriate use of bankruptcy. Luckily for the former client a court agreed that this tactical maneuver was inappropriate and was done in bad faith. In the ruling this law firms master plan fell apart and instead of putting itself in a better position to recover the $200,000 in attorneys fees, it will have to pay punitive damages, attorney's fees and costs to the former client.
 
This entire case goes to the heart of any bankruptcy, good faith. The entire bankruptcy system has been built on this principal that those who seek its protection are doing so in good faith, and with the honest intentions of needing court intervention to help them sort out their life and finances. Once any person or company seeks to abuse bankruptcy then courts will have no trouble from withholding its protection. It should bring you great comfort to know that cases like this are the exception and that most qualified and deserving people who file for bankruptcy, do so with good faith and receive bankruptcy protection.