FORMER BANKRUPTCY DEBTORS MAY BE JUDICIALLY ESTOPPED FROM ASSERTING CLAIMS OR COUNTERCLAIMS IN OTHER CASES

By Amy Kiser, Esquire

When faced with a claim or counterclaim from a current or former bankruptcy debtor, one of the first questions should be: was this claim included in the debtor’s schedules? If the answer is no, the debtor may be judicially estopped from bringing the claim or counterclaim.

Upon filing bankruptcy, the debtor is required to submit schedules, signed and under oath which detail their assets. This is to ensure that complete and candid disclosures are made to the trustee, creditors and the court. Those assets generally become property of the bankruptcy estate. The duty to disclose does not cease once the schedules are filed. If a post-petition claim arises, the debtor has an ongoing duty to disclose that claim by amending their schedules. See Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282 (11th Cir. 2002); De Leon v. Comcar Industries, Inc., 321 F.3d 1289, 1291 (11th Cir.2003); Waldron v. Brown, 536 F.3d 1239, 1244 (11th Cir.2008); Robinson v. Tyson Foods, Inc., 595 F.3d 1269 (11th Cir. 2010).

Judicial Estoppel is an equitable doctrine that prevents parties from asserting a claim in a legal proceeding that is inconsistent with a claim taken by that party in a previous proceeding to prevent the perversion of the judicial process. Burnes, 291 F.3d 1282. To invoke judicial estoppel in the Eleventh Circuit, the debtor must make inconsistent positions under oath in a prior proceeding and such inconsistencies must be shown to have been calculated to make a mockery of the judicial system. Id. (internal citations and quotations omitted).

If the potential claim is not disclosed, the debtor is representing that there are no legal claims in the bankruptcy court while actively pursuing a legal claim in another court. Robinson v. Tyson Foods, Inc., 595 F.3d 1269 (11th Cir. 2010). This constitutes inconsistent positions made under oath.   Id.

The Eleventh Circuit has held that if a debtor fails to disclose, there is an automatic presumption that the failure was intentional and as such, it was calculated to make a mockery of the judicial system. Id.   To overcome this presumption the debtor must show that they had no knowledge of the cause of action or no motive to conceal it. Id. However, if the lawsuit is seeking monetary damages, the debtor has reason to conceal in order to prevent the proceeds from the lawsuit from being distributed to the creditors in the bankruptcy case. Id. Accordingly, this presumption is rarely overcome.

Therefore, next time you are faced with a claim or counterclaim it is worth the effort to review the schedules filed in the debtor’s bankruptcy to see if the claim or counterclaim was disclosed. If it was not disclosed the plaintiff may be judicially estopped from bringing the claim.

As always, it is prudent to seek the advice of your foreclosure and bankruptcy counsel.