Preventing a Windfall: Getting a Dismissal When Plaintiff Fails to Disclose the Claims in Bankruptcy

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The bankruptcy code provides protection and relief to individuals facing insurmountable debt, but it carries certain obligations and limitations, notably requiring them to list all of their assets, including any claims or potential claims on the schedule of personal assets. As bankruptcy courts and creditors rely on the debtor's sworn representations to order a discharge of debt, a plaintiff who failed to disclose those claims in a prior or pending bankruptcy action has no standing to later pursue the non-disclosed claims and receive a windfall recovery free and clear of obligations to creditors. The failure to disclose claims also amounts to a fraud on the bankruptcy court and thus may be subject to dismissal under principles of judicial estoppel to prevent debtors from hiding assets in order to be discharged from debt. Defendants should discover early in the case any bankruptcy filings of the plaintiff, and file an appropriate motion on the basis of both theories together.

No Standing to Bring Non-Disclosed Claims

The defense that a plaintiff lacks standing to bring claims that were not disclosed in his bankruptcy property schedules is a straightforward jurisdictional issue of law that can be brought by any party at any time. Once a debtor files for bankruptcy protection, all of his assets become part of the bankruptcy estate. He receives ownership and control of those assets again only after disposition and discharge, or when the trustee releases or abandons assets. If the cause of action existed at the time of the filing of the bankruptcy petition, it is the property of the bankruptcy estate, regardless of whether it was disclosed on the schedules. Pruitt v. Hancock Med. Ctr., 942 So.2d 797, 801 (Miss. 2006).

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