One of the requirements of filing a Bankruptcy case is completing the Schedules honestly and completely. It is perfectly fine to unintentionally leave something out as long as the Schedules are amended. One of the most common items left off Schedule B (personal property) is claims or lawsuits that the person filing for Bankruptcy has against others. This might be personal injury claims, employment discrimination claims or any other claim against another party that exists when the Bankruptcy is filed, whether or not a lawsuit has been filed. Some people, usually those without a lawyer, may honestly not understand that a claim for money is an asset just like a vehicle or bank accounts. Others intentionally fail to list the claims, hoping that the Trustee will not find out about the claim. What happens when lawsuits and claims are not listed in the Bankruptcy Schedules?
First, the Trustee and other party in the lawsuit almost always find out. Lawyers for parties that are sued normally check the online Bankruptcy Court records to see if the plaintiff has filed a Bankruptcy case, and then notify the Trustee. If the claim has any value, the Trustee may step into the shoes of the debtor and settle the claim for the benefit of the creditors. More importantly, the failure of the debtor to list the claim may result in a complete defense in a lawsuit under a theory called “judicial estoppel.” Since the debtor has represented in one Court (Bankruptcy Court), under penalty of perjury, that no claim exists, they are “estopped” (or prohibited) from going to another court and suing on the “non-existent” claim. Many courts have ruled that even the Trustee cannot pursue the claim. In addition, when the Trustee or U.S. Trustee find out about the lawsuit, it could lead to a revocation of the discharge and even criminal charges in a few cases. You also will likely lose any exemptions that you could have taken for any money that is recovered.
If you have a claim for money against anyone it is very important you disclose it to your Bankruptcy lawyer as soon as possible. It is possible it will affect your filing or the timing of the filing. If you have another lawyer pursuing the claim, that lawyer also needs to know about your Bankruptcy filing.