When you file for bankruptcy, you need to list all of the lawsuits that you are involved in, or have been involved in for the past year.
Typically, this will involve listing one or several collection cases that have been filed against you in local forums such as the Lawrence District Court.
But it also means listing lawsuits that you have against others, including actual claims that have been filed in court, and potential claims that could be filed in court in the future.
If you “forget” to tell your bankruptcy attorney about these other claims, bad things can happen — to you and your expected windfall. For example, your own personal injury lawyer, hired on contingency, could find out about the bankruptcy case and become (rightfully) reluctant to forward your share of the settlement. Instead, he might contact the bankruptcy trustee directly and ask what he should do. Chances are, the trustee will re-open the case and accept the settlement, and distribute it to the unsecured creditors. The PI lawyer still gets paid, its just the settlement money that gets re-routed. This recently happened in Orlando, Fla.
Or take a look at this case from Los Angeles: there, a local court dismissed outright a lawsuit that wasn’t listed on the plaintiff’s bankruptcy petition, calling it a case of “judicial estoppel.”
In laymen’s terms, judicial estoppel means you cannot take inconsistent positions in different judicial proceedings. You cannot tell the bankruptcy court you have no claims and then assert a claim in civil court soon thereafter. In this case, the court dismissed a lawsuit because the plaintiff’s recent bankruptcy asserted that the debtor had no claims or reasons to sue anyone.
So if you are going to file for bankruptcy, take a minute and do it right; let your bankruptcy lawyer know about any potential lawsuits you have so they can be declared properly. That way you probably will get to keep at least part of the settlement.
By Doug Beaton