California Court Discusses Estoppel in Bankruptcy Cases

People seeking debt relief via bankruptcy actions must file legal pleadings with the court and verify that the information contained in those pleadings is accurate. If they take a certain position in a bankruptcy action, they cannot, at a later date, take a contrary position to suit their changed needs. This tenet, known as the doctrine of estoppel, was explained in a recent California bankruptcy action where a debtor who originally asserted he was an employee of a company later attempted to argue he was a sole proprietor in an adversary proceeding. If you are interested in learning how you may benefit from filing for bankruptcy, it is smart to meet with a California bankruptcy lawyer as soon as possible.

Background of the Case

It is reported that the debtor filed an adversary proceeding against the defendant, asking the court to reinstate an office lease and grant him damages for the defendant’s violation of the automatic stay, after the defendant took possession of property rented by a business. The defendant moved for judgment in its favor on the grounds of estoppel. The court, finding inconsistencies between the debtor’s bankruptcy filings and the allegations in his adversary complaint regarding the lease and other business-related property, granted the motion. The debtor appealed.

Estoppel in Bankruptcy Cases

On appeal, the court upheld the lower court ruling. The court explained that judicial estoppel prevents a debtor from asserting a claim in the current proceeding that is inconsistent with a claim they made in a previous proceeding. In the subject case, the position the debtor asserted in his adversary proceeding regarding ownership and operation of a business and its assets were clearly inconsistent with his bankruptcy schedules, amendments, and Chapter 13 plan.

The court explained that the court, the Chapter 13 trustee, and the creditors relied on the debtor’s original position when they confirmed the debtor’s plan. Therefore, the court applied judicial estoppel to prevent the debtor from asserting the later inconsistent position.

Further, the court explained that even if judicial estoppel did not apply, the court found that the defendant’s motion was properly granted because the debtor did not establish a prima facie case against the defendant. Specifically, the issue at hand was whether the defendant violated the automatic stay provision of the bankruptcy code by taking possession of property of the estate.

Thus, the debtor needed to provide evidence that the personal property in question belonged to him. However, the evidence he presented, primarily his own testimony, was not sufficient to establish his ownership. He did not provide a comprehensive inventory, receipts, or evidence of the value of the items. Further, the bankruptcy court found the debtor was not credible and gave little weight to his testimony. Therefore, the court affirmed the lower court ruling.

Talk to a Dedicated California Bankruptcy Attorney

When people file bankruptcy actions, they must ensure that the information that they provide the courts is true, as it will shape the outcome of their case. If you need help managing your debts, it is wise to talk to a bankruptcy attorney to determine whether bankruptcy may be right for you.  Matthew D. Roy is a dedicated bankruptcy lawyer in California who can advise you of your options and aid you in seeking any relief available under the bankruptcy code. You can reach Mr. Roy through the form online or by calling (916) 361-6028 to set up a meeting.