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Looking at the relationship between receivership and bankruptcy

In our last post, we mentioned the ongoing bankruptcy troubles of Milwaukee businessman Robert Kraft. As we noted, Kraft has filed for Chapter 11 bankruptcy--and, more recently, personal bankruptcy--and his Chapter 11 filing came after one of his companies was placed in receivership.

One of the potential issues with receiverships is whether a debtor whose assets are placed in receivership may file for bankruptcy. The answer is that it depends whether the receivership is through a state or federal court, as well as the circumstances of the case. It may generally be allowed when a receivership is through a state court, but it isn't as clear when the receivership is through a federal court, which raises the interesting question of which proceeding takes precedence when a bankruptcy case is filed during an ongoing receivership. 

The answer to the above question is, unfortunately, not cut and dry. It really depends on the facts of each case, and courts are going to consider various factors, including: the length of the receivership; the debtor's actions; the form of bankruptcy filing; the party which sought out the receivership; and whether the debtor is using the bankruptcy process simply in order to obtain a more favorable outcome.

Companies in the midst of a receivership which intend to seek out bankruptcy need to have guidance and advocacy when doing so to ensure their interests receive strong advocacy. Our firm can help ensure that a debtor business has the best possible representation in its case, regardless of what direction it goes.

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