Claims and Causes of Action in a Bankruptcy Case

 When filing for bankruptcy, you will be required to list all of your property and assets on your schedules or bankruptcy paperwork. A type of asset that is often overlooked includes any potential lawsuits you may be able to bring. Usually, these kinds of cases would be a personal injury case, like a car accident or slip-and- fall case, or it could be a wrongful termination, or even a breach of contract. It is important that if you have a cause of action, you make sure that it is listed on your bankruptcy schedules. Failing to list a cause of action can cause this potential suit to be barred. In other words, you would not be able to pursue that lawsuit at any point in the future.  This is because of the legal doctrines of judicial estoppel or res judicata. Note: you can also be subject to penalties under the bankruptcy code for failing to list assets.

Failure to disclose a cause of action in bankruptcy could result in a total bar to prosecution of the cause of action through judicial estoppel.  Put simply, you can’t have your cake and eat it too. Judicial estoppel is an equitable doctrine which prohibits a party from taking a position on an issue that is clearly inconsistent with what they previously asserted. So in other words, you can’t say that you do not have a lawsuit and then later claim that you do because it’s convenient. Debtors may also find their causes of action barred by res judicata if they fail to disclose the causes of action on their schedules. Res judicata seeks to prevent parties from having multiple opportunities to litigate the same claim that they have or should have already taken care of.

The value listed on the schedules for a cause of action or a potential cause of action can also have judicial estoppel effects. For instance, if you claim a cause of action for a very small value or no value, you may be limited to that amount if/when you pursue the lawsuit.

Value is also important so that you can exempt the cause of action. Certain types of lawsuits fall under state or federal exemptions. For example, awards from personal injury lawsuits or wrongful death lawsuits can qualify for federal exemptions under 11 U.S.C. § 522(d)(11). Under the Federal exemptions debtors can also use the 11 U.S.C. § 522(d)(5) or “wildcard” exemption to exempt the asset.

Therefore, it is very important that if you are preparing to file for bankruptcy that you tell your attorney about any lawsuits you may have.  The attorneys at Fears | Nachawati will be able to walk you through this important process and make sure that you are able to protect your lawsuit and make sure you file under the right chapter or use the correct exemptions. To get started with a free consultation, call our office at 1.866.705.7584.

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