Bankruptcy Courts Differ on whether Unpaid Floorplan Balances can be Discharged

 When floorplan lenders sue, generally they claim “conversion” for inventory sold “out of trust”.  The lenders also either threaten to or actually do object to the discharge of these debts in bankruptcy. The courts are all over the map in how they treat these cases. Knowing this affects how we defend conversion cases by floorplan lenders.  Fundamentally, we have found during the initial lawsuit, it is crucial to raise a defense to a conversion claim to keep the creditor from getting a default judgment for conversion.  Next, it is best if a settlement can be arranged that gets rid of the conversion claim as well as the breach of contract claim.  If no settlement can be reached, our next approach is to make sure the creditor gets a judgment for breach of contract only, and not for conversion.  

Even if they just get a judgment for breach of contract, that doesn’t mean that they can’t still object to discharge in bankruptcy. If they do though, it is important for your bankruptcy attorney to fight back. If the creditor meets resistance, they will probably cut a deal.  This means that you need to save some money for the fight in bankruptcy court, and you need to find a bankruptcy attorney who handles contested “adversary” cases.  

The bottom line, if you as a businessperson are sued by a floorplan lender, call us. Keith Hagan and I have handled hundreds of floorplan cases over the last four years, and settled a good portion of them, even some cases that didn’t seem capable of being settled at first.  We can only litigate the case in Indiana, but no matter where you are located in the United States, and whichever lender we may be able to negotiate on your behalf.  

Here’s a comment on the subject from another law firm, Severson.com.  https://www.severson.com/consumer-finance/bankruptcy-courts-reach-different-conclusions-on-whether-floorplan-lenders-loans-were-dischargeable-when-debtor-converted-funds-and-went-out-of-trust/