California Court Addresses the Failure to Include Claims in Bankruptcy Schedules
In bankruptcy matters, the debtor must set forth schedules that include all of their property, assets, income, sources of money, and debts. Among other things, this includes any pending or potential claims or lawsuits. If they fail to properly disclose such information, they may be barred from pursuing such claims after they obtain a discharge from the bankruptcy courts. Recently, a California court discussed the measures available for a party that failed to disclose a potential lawsuit in a bankruptcy proceeding. If you have questions regarding the intersection of bankruptcy and civil claims, it is smart to speak to a skilled California bankruptcy lawyer as soon as possible.
Procedural History of the Case
It is reported that the debtor filed a civil lawsuit in the United States District Court for the Central District of California. After pleadings closed, the defendant moved for judgment on the pleadings arguing that the debtor could not proceed with his claims because he failed to disclose them in a recent bankruptcy proceeding. The debtor filed a response in opposition to the motion.
The Intersection of Bankruptcy and Civil Claims
The court ultimately denied the defendant’s motion without prejudice, granting it the right to renew its motion after the facts had been further developed. The court explained that, in the context of bankruptcy, the federal courts adhere to a basic default rule: if a debtor omits a lawsuit or potential claim from its bankruptcy schedules and obtains a plan confirmation or discharge, they will be barred from pursuing their lawsuit or claim via judicial estoppel.
The Supreme Court has noted, however, that it may be suitable to refrain from applying judicial estoppel if the debtor’s failure to include claims or lawsuits in their bankruptcy schedule arose out of mistake or inadvertence. The court clarified that if a debtor has not opened their bankruptcy proceedings when faced with the dismissal of their claim, there is a presumption of deceit, and the exceptions of mistake and inadvertence must be construed narrowly.
If the debtor has reopened their bankruptcy proceedings, though, instead of applying a presumption of deceit, judicial estoppel necessitates an investigation into whether the error in their bankruptcy filing was, in fact, a mistake or inadvertent as the terms are commonly understood. In other words, whether it was an accident or occurred without an intent to conceal. In the subject case, the debtor stated he would reopen his bankruptcy proceedings to include his claims against the defendant. Thus, the court applied the lower inadvertence standard and dismissed the defendant’s motion.
Meet with a Trusted California Bankruptcy Attorney
People seeking debt relief via bankruptcy must fully disclose their assets and liabilities, and if they fail to do so, they may face significant consequences. If you have overwhelming debts, you may be able to seek relief via bankruptcy, and it is smart to meet with an attorney to discuss your options. Matthew D. Roy is a trusted California bankruptcy lawyer with the skills and resources needed to help you seek the best legal outcome available under the facts of your case. You can reach Mr. Roy through the form online or by calling (916) 361-6028 to set up a conference.