Applying Judicial Estoppel to Bankruptcy

Bankruptcy filers are required to disclose a vast amount of information in their bankruptcy petition about their financial situation. Included in this information is a list of all assets owned by the debtor at the time their case is filed. Preparation of this list of assets requires careful attention by the debtor and their attorney, because many people don't understand that the term 'asset' includes many different types of things, not all of which are physical in nature. If you ask the average layperson to list their assets, they will likely give you a list including their car, house, clothes, and furniture. But not all assets are physical things you can touch.

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Many people have assets that are intangible, difficult to define and with an unknown value. These may include a debt owed to them, the right to sue a party for damages, or a life insurance policy. These types of assets may have great value or they may be worthless. Sometimes it is difficult to measure the value of these types of assets because the value depends on the debtor's ability to collect and any attorney or collection agent will tell you that there are no guarantees when it comes to collecting a debt or succeeding in a lawsuit. Nevertheless, lawsuits and money owed to the debtor are assets and must be disclosed in a bankruptcy petition.

Failing to list a cause of action in a bankruptcy petition can have dire consequences. Judicial estoppel is a common law doctrine that prevents a party from taking a position in a legal proceeding that opposes the position taken in a prior proceeding. Courts apply this doctrine to bankruptcy cases by preventing filers who fail to list a cause of action in their schedules from later pursuing litigation.

Causes of action must be listed and an estimate of its value included. The debtor is free to exempt a portion of the asset. Undervaluing the asset will not prevent an award of a higher amount in later litigation. Courts take the position that judicial estoppel should apply to debtors who are sloppy or dishonest in preparing their schedules. Listing an asset and valuing it much lower than the amount later sued for in litigation will not trigger judicial estoppel.

Debtors considering filing bankruptcy must tell their attorney if they have been in a car accident, injured at work or if they are owed money for any reason. Likewise, a good bankruptcy attorney will always ask his clients leading questions designed to elicit information about these types of assets. Fail to disclose this information and you may lose your cause of action.

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