discharging contracts/goods owed

[jasonater]

We are filing chapter 7- we have lots of debt, no assets, and the debt aspect is pretty straightforward (CC and medical). However, currently, we are also sub-contracted to manufacture plastic figurines (we have an art studio) to a local marketing company, for a client of theirs. We have also been contracted by their client to then package and deliver the figurines to a local procurement house. We have been paid (for both jobs, by both the marketing company and their client), but we cannot afford to finish the job (we have lost money on this contract already). Since we are filing anyways, we want to include these contracts in the bankruptcy so we do not have to fulfill it, or owe back the money we have already been paid (it is spent already anyways).

So- a couple questions

What do we do with all the stuff given to us by client to fulfill the job?? We have in our possession printed packaging, boxes and other supplies provided to us by client(s) to do the job. Technically, that stuff belongs to the client. Can they sue us AFTER the bankruptcy to recover value of the materials we have?? Can we throw away the clients materials after contract is discharged?

Also, by not fulfilling this contract, we are creating a huge liability for the marketing company- as they will be left 'holding the bag' for the client. By not fulfilling or end, the marketing company will surely be liable on some level to their client, possibly sued themselves. It is their responsibility to secure these figurines- they sub contracted us, and we are not going to fulfill our end. This is going to be really bad for them. Does the discharge of this contract release us from all liability? Can we get sued for 'damages' even if our contract with the marketing compony has been discharged?

[AngelinaCat]

You don't sound like you have a simple Ch7 case to me.

In that you have accepted money for figurines that you cannot supply to your customer, because for whatever reason, you cannot afford to finish them, you have several problems. You are a third party contractor, but you cannot fulfill the contract. Sorry, but somewhere in this mess, it sounds like the original customer gets the 'shaft'.

I am concerned that there may be the appearance of BK fraud here. I did NOT say you were committing fraud, but you must look at the issue the way a BK Trustee will view it.

You need to schedule at least 4 or 5 free consultations with BK attorneys to see what they advise in your situation.

Good luck to you.

[ValleYum]

So you have been procrastinating a Chapter 7 for over 2 years per your post back in July 2011:

Well I am partly to blame as I have been procrastinating this bankruptcy for a year- <snip>

And despite this you still took on what sounds like a large project that now you are going to renege on causing irreparable harm to the marketing company you received the contract from? I hope you have both a good BK attorney and possibly a contract law attorney on retainer - you may need them both.

But I think it is the fact that you want to THROW AWAY the packaging and other materials that you were provided with rather than returning them to the company that gave them to you for your production that rubs me the wrong way the most. Wow. Just wow.

Note: These are my personal opinions and are not those of the BK Forum or its administrators/owners.

[Pjmax]

But I think it is the fact that you want to THROW AWAY the packaging and other materials that you were provided with rather than returning them to the company that gave them to you for your production that rubs me the wrong way the most. Wow. Just wow.

Note: These are my personal opinions and are not those of the BK Forum or its administrators/owners.

Even though I have no legal background, that perfectly describes my reaction to reading this, "Wow. Just wow."

[HHM]

First, is your art studio/production incorporated. Are the contracts with you, personally, or with your company (e.g. LLC, Corporation, etc).

Second, if the items supplied to you are not yours, you cannot just throw them away. You are holding property of another. If you were to simply toss out the items, that is an intentional act with which you have no apparent authority to do. If the company wanted, it could pursue you for the value of those items, and since you intentionally caused the harm (by throwing the items away) that would fit into a type of BK fraud (strictly speaking, you would be committing a tort), and therefore, you could not discharge the obligation to pay the company for the items you threw out. Now, that doesn't mean you necessarily need to incur the cost to return the items, but you must preserve the items and make them available to the owner.

Yes, you could discharge your obligation to perform (these would be executory contracts on the BK Petition) and you would not be liable for any resulting financial harm unless there was some sort of fraud. (You need to be careful here, these contracts may have provisions regarding providing notice of inability to perform, etc., you should comply with those notice provisions).

These sorts of cases tend to get messy, which means for you, expensive. It is not so much that anything bad happens, it is that you and your attorney have to deal with the companies and that simply takes up time.

[ohiogal]

Does the company you were going to make the figurines for know yet that you can't deliver the goods? Because if they don't, right now they're probably thinking everything is proceeding right on schedule. You need to let them know ASAP so they have a chance to find another company to make the figurines - assuming they have time for that. What was the deadline to have the figurines finished and delivered?

[jasonater]

Hold on folks- people seem to be making rather large assumptions. We didn't just sign the contract, get paid, not do any work, and declare bankruptcy. This has been a long ordeal.

1-We have delivered several batches of figurines- but the money has run out- and we cannot continue to make them. Its that simple. It was a bad deal from the start. The job was misrepresented to us from the beginning- in that has proven to be far more expensive to produce the figurines than we were told it would. We have lost our shirts. And the marketing company is telling us 'tough luck- you are obligated'. We did not go into it EVER thinking this would have anything to do with our BK. Rather, since I was unemployed at the time, we thought it would be a great opportunity to get back to work, and maybe even avoid BK. It has proven to be a nightmare instead.

2. Throwing their materials out- sounds like we need to afford them the opportunity to pick up their boxes. Thats what I needed to know. Heck I will even give them the original molds, which are my property, so they can setup the next contractor.

3. I'm not sure anyone can assert fraud here- we worked hard on the project and spent more than we have been paid (which we can document).

4. They have enough figurines to hold them for a while. They will have time to find another contractor to continue.

To be clear- we have two obligations- the first, with the marketing company to MAKE the figurines, and a second, separate obligation to the actual client to PACKAGE them and then deliver locally to a procurement house. We are including the marketing company, and the client in the BK.

Also- we are not incorporated or an LLC or anything- this was done under our names.

I guess what I was really wondering about has been answered- which is that, if we include this in BK, can they then sue us later on for 'damage to reputation' or whatever. Sounds like they can't.

[LadyInTheRed]

A couple of things to keep in mind.

You may not have done anything wrong here, but that doesn't mean one of these parties won't file an AP claiming there was fraud and that your obligations under the contract are not dischargeable.

It sound like you believe you have a claim for misrepresentation. Make sure that potential claim gets listed on your BK petition, even if you have no intention to act on it.

If the molds belong to you, don't give them away without consulting with an attorney first.

You should definitely consult with a few experienced BK attorneys. You don't know how these people will react to you filing BK and their reaction could make your case far from simple.