Tell your attorney about your bankruptcy
April 16, 2013 Leave a comment
If you have a legal claim of any type (personal injury, drug litigation, BP oil spill claim, wage loss claim——-anything at ALL), tell the attorney handling the claim if you have any intentions of filing bankruptcy or if you have filed bankruptcy previously. Also, tell your bankruptcy attorney of any potential legal claims you may have against anyone.
Despite the fact that we ask the bankruptcy questions to every single client, some have slipped through the cracks over the years. In those situations the client typically filed bankruptcy while his or her injury claim was proceeding. We have been successful so far in correcting the problems and ultimately proceeding with the injury litigation, but failure to disclose potential claims can have disastrous consequences.
Kimberly Lentz over at chapter7trustee.net has 5 good reasons a debtor should disclose all potential claims:
1. The debtor will avoid prison. http://www.justice.gov/ust/r05/docs/general/press/2009/pr20091106.pdf.
2. The willful failure to disclose assets is fraud and could result in the denial or revocation of the debtor’s discharge. In re Sholdra, 249 F.3d 380 (5th Cir. 2001); In re Beaubouef, 966 F.2d 174 (5th Cir 1992); In re Chalik, 748 F.2d 616 (11th Cir. 1984).
3. Under the doctrine of judicial estoppel it is unlikely that the debtor will ever prevail in the pursuit of the cause of action. Judicial estoppel operates sort of like an admission. Failure to disclose a cause of action is treated as if the debtor admitted that it did not exist. Reed v. City of Arlington, 650 F.3d 571 (5th Cir. 2011); Kane v. National Union Fire Ins. Co., 535 F. 3d 380 (5th Cir. 2008); In re Superior Crewboats, Inc., 374 F.3d 330 (5th Cir. 2004); In re Coastal Plains, Inc., 179 F. 3d 197 (5th Cir. 1999). (More on judicial estoppel in future posts)
4. The debtor could receive a surplus distribution after creditors’ claims are satisfied. Although the debtor may have scheduled numerous unsecured creditors, only creditors who file Proofs of Claim are entitled to a distribution from the bankruptcy estate.
5. If the debtor owes taxes or has non-dischargeable debts, he will benefit from distributions made by the bankruptcy trustee.
Lawyers, if you are not asking your clients about bankruptcy at initial intake you are setting yourself up for disaster. Defendants will and should ask about this during written discovery and during depositions. Given that bankruptcy filings are easily viewed through the Federal Court ECF system, this isn’t a ball you can hide.