BK COURT DECIDES SEVENTEEN PERCENT OF RESTAURANT PURCHASE PRICE NOT DISCHARGED(一)

Client, a mail carrier, filed for Chapter 7 relief after operating a restaurant that he operated for 18 months used up all his financial resources. He bought the restaurant for $171,000. He paid $71,000 as down-payment and executed a promissory note for $100,000, payable within 6 months secured by a collateral agreement in favor of seller for existing and new restaurant equipment. Client purchased the restaurant believing that sales were at least $2,000 a day based on representations made by the cook of the restaurant and seller. Client believed that with $2,000 of sales daily, he would be able to pay back the entire $100,000 note in six months from profits. Client kept his job at the USPS while depending on the cook and the cook’s family of 3 to run the restaurant for him. After acquiring possession of the restaurant, client found out that a lot of equipment needed to be replaced or repaired despite seller representations that everything was working. He spent $30,000 for new equipment and another $30,000 to fix the place. Repair of the air-conditioner alone cost $8,000. Client was not represented by counsel in the purchase of the restaurant and did not understand that the collateral agreement prohibited him to transfer equipment because seller had a security interest in existing and after acquired equipment.

Since the restaurant never made a profit, and client was out another $60,000 for new equipment and repair of premises, client was not able to pay the $100,000 note to seller. This prompted seller to file a lawsuit in state court to get possession of the restaurant back from client who refused to give it back. Instead of defending himself in state court, he did not retain counsel and did not respond to the lawsuit. Thus, after some time, client was declared in default. Eventually, a default judgment was entered against him for $100,000 and ordering him to return possession of the restaurant to seller.

Seller then filed an adversary complaint in client’s bankruptcy asking that the entire purchase price for the restaurant of $171,000 be deemed non-dischargeable on the ground of fraud pursuant to 11USC§523(a)(2), on the ground of intent to cause her injury pursuant to §523(a)(6), and that debtor’s discharge be revoked on the ground that he made a false oath in bankruptcy and that he failed to preserve adequate books and records to ascertain his financial condition.

《楊清泉律師專欄》BK COURT DECIDES SEVENTEEN PERCENT OF RESTAURANT PURCHASE PRICE NOT DISCHARGED(二)