Why Litigation and Bankruptcy Searches Matter

A business's legal history reveals operational stability, financial health, and potential liability risks. Court records provide evidence of disputes, judgments, and financial distress that may not appear in credit reports or financial statements.

Litigation and bankruptcy searches help answer critical questions:

Is the business involved in ongoing legal disputes?
Are there judgments against the business indicating unpaid debts?
Has the business filed for bankruptcy or been forced into involuntary bankruptcy?
Does the business have a pattern of disputes with customers, vendors, or partners?
Are there pending lawsuits that could create significant future liability?

Court records are public and comprehensive, making them essential data sources for assessing business risk before extending credit, entering partnerships, or making investment decisions.

What is a Docket?

A docket is the official record of all proceedings and filings in a legal case, maintained by the court.

Origin of the term:

The word "docket" originally referred to a small piece of paper or label attached to documents summarizing their contents - similar to a table of contents or index. In legal contexts, it evolved to mean the court's official register or log of all actions taken in a case.

What a docket contains:

Case header information (case number, parties, attorneys, judge)
Chronological list of all filings (complaints, motions, briefs, evidence)
Court actions and orders (hearings scheduled, rulings issued, judgments entered)
Status updates (pending, dismissed, settled, closed)

Why "docket" matters:

When you "search dockets" or "pull docket records," you're accessing the complete chronological history of a court case - not just the outcome, but every step taken. This provides context that case summaries alone cannot capture.

Litigation Records (Dockets)

Court records documenting lawsuits and legal proceedings involving a business as plaintiff, defendant, or other party.

What dockets contain:

Case information (case number, filing date, court, case type)
Parties involved (plaintiff, defendant, attorneys)
Case status (pending, dismissed, judgment entered, settled, etc.)
Docket entries (chronological record of filings, hearings, motions, orders)
Judgments and outcomes
Damages awarded or settlements (when disclosed)

Court Systems and Jurisdictions

Litigation records exist across multiple court systems with different coverage and access methods.

Federal Courts

Cases involving federal law, interstate disputes, bankruptcy, or cases where parties are from different states and amount exceeds $75,000.

Key federal court types:

District Courts: trial courts for civil and criminal federal cases
Bankruptcy Courts: exclusively handle bankruptcy filings
Court of Appeals: review decisions from district courts
Supreme Court: highest appellate court (limited cases)

State Courts

Cases involving state law, smaller disputes, family matters, and most civil litigation.

Key state court types:

Superior/Circuit Courts: general jurisdiction trial courts (most civil and criminal cases)
Appellate Courts: review lower court decisions
Supreme Court: highest state court (varies by state)

County Courts

Local courts handling smaller disputes, traffic matters, and preliminary hearings.

Typical jurisdiction:

Small claims (disputes under $5,000-$10,000 depending on state)
Landlord-tenant disputes
Local ordinance violations
Preliminary criminal hearings

Litigation as Plaintiff vs. Defendant

Understanding whether a business is suing or being sued provides context for risk assessment.

Business as Plaintiff

A business filing lawsuits against others.

Common scenarios:

Collecting unpaid debts from customers
Enforcing contracts or non-competes
Protecting intellectual property
Pursuing fraud or breach claims

Risk interpretation:

Moderate volume: normal business activity, especially for B2B companies
High volume: may indicate collections-heavy business model or poor customer vetting
Excessive plaintiff activity: could suggest aggressive litigation strategy or operational problems

Business as Defendant

A business being sued by others.

Common scenarios:

Breach of contract claims
Non-payment of debts to vendors/suppliers
Consumer complaints or product liability
Employment disputes
Regulatory violations

Risk interpretation:

High defendant volume: serious red flag indicating operational, financial, or compliance issues
Recent judgments against: unpaid debts, damages owed, liability exposure
Pattern of similar cases: systemic problems (e.g., multiple employment disputes, consumer class actions)

Bankruptcy Filings

Legal proceedings where a business or individual seeks relief from debts they cannot pay, either through liquidation or reorganization.

Bankruptcy filings are court proceedings with significant implications for creditworthiness and business viability.

Chapter 7 Bankruptcy (Liquidation)

Business ceases operations and liquidates assets to pay creditors.

Key characteristics:

Business stops operating
Assets sold to pay creditors
Remaining debts discharged
Business entity typically dissolved

Risk assessment:

Active Chapter 7: business is shutting down, automatic decline for new credit
Discharged Chapter 7: business no longer exists or individual discharged debts
- For individuals/sole proprietors: recent discharge may indicate past financial distress but debts eliminated

Chapter 11 Bankruptcy (Reorganization)

Business continues operating while restructuring debt under court supervision and creditor committee oversight.

Key characteristics:

Business remains operational during bankruptcy
Proposes reorganization plan to reduce/restructure debt
Must be approved by creditors and court
Can emerge successfully with reduced debt burden
May take months to years to complete

Risk assessment:

Active Chapter 11: extreme caution, business under financial distress and court supervision
Recent emergence from Chapter 11: business restructured but still carries significant risk
Failed Chapter 11 → Chapter 7: business could not reorganize, now liquidating

Under certain situations Chapter 11 might be less concerning: a strategic bankruptcy (e.g., asbestos liability management), or a large corporation with one troubled division.

Chapter 13 Bankruptcy (Individual Debt Adjustment)

Debt repayment plan for individuals, including sole proprietors, with regular income.

Key characteristics:

Individual (not business entity) reorganizes personal debts
Proposes 3-5 year repayment plan
Keeps assets while making payments
Common for sole proprietors mixing business and personal finances

Risk assessment:

Active Chapter 13: individual under financial stress, making court-supervised payments
Recent Chapter 13: completed repayment, debts satisfied, less concerning than Chapter 7

Involuntary Bankruptcy

Creditors force a business into bankruptcy when the business has not paid debts.

Involuntary bankruptcies are usually filed as Chapter 7 to force liquidation. Although less common, creditors can also file an involuntary Chapter 11 to force a reorganization.

Characteristics:

Filed by creditors, not the business
Requires multiple creditors or single creditor with sufficient claim
Business must be generally not paying debts as they come due
Strong signal of severe financial distress

Risk assessment:

Involuntary bankruptcy is an extremely negative indicator. Creditors are so concerned about non-payment they're forcing bankruptcy proceedings.

Bankruptcy Timeline and Status

Understanding bankruptcy status is critical for risk assessment.

Key statuses:

Petition filed: bankruptcy initiated, business under automatic stay (creditors cannot collect)
Active/Pending: case ongoing, reorganization plan being negotiated or assets being liquidated
Plan confirmed: court approved reorganization plan (Chapter 11/13)
Discharged: debts eliminated, case closed
Dismissed: case thrown out, debts still owed
Converted: changed from one chapter to another (e.g., Chapter 11 → Chapter 7)