Chapter 13 Debtor’s Lawsuit Tossed Out for Failure to List It in Bankruptcy Documents

31 Jan Chapter 13 Debtor’s Lawsuit Tossed Out for Failure to List It in Bankruptcy Documents

mainThe doctrine of judicial estoppel reared its ugly head again, preventing a chapter 13 debtor from suing his former employer for racial discrimination.  The U.S. Court of Appeals, Eighth Circuit, ruled that a chapter 13 debtor should have amended his bankruptcy documents to list the lawsuit, even though the debtor suffered the alleged discrimination three years into a five year long bankruptcy reorganization case.  Jones v. Bob Evans Farms, No 15-2068 (8th Cir. Jan. 26, 2016).

The debtor’s chapter 13 plan contained a provision requiring him to report any lawsuits to the trustee.  He failed to do so until after the lower court dismissed his discrimination case, after he had been granted a discharge in his chapter 13 proceeding.

Judicial estoppel is court doctrine designed to protect the integrity of the judicial process.  It requires that litigants not adopt inconsistent positions in lawsuits.

A chapter 13 debtor has an obligation to amend his or her bankruptcy documents during the pendency of the three to five year case if the debtor acquires a new asset, such as a valuable right to sue for employment discrimination.  If the debtor fails to do so, that failure amounts to a misrepresentation of the facts — it amounts to a sworn statement in bankruptcy court that the debtor has no lawsuits to pursue.  The debtor is not allowed to contradict that sworn statement by filing a lawsuit in another court.

This was especially true in the present case, where the chapter 13 plan specifically required such a disclosure.

In a chapter 7 case, to avoid the application of judicial estoppel the debtor must carefully list any rights to sue in the originally filed bankruptcy documents.  In a chapter 13 case, this duty is ongoing, and it is not enough to list lawsuits that might exist only on the date the bankruptcy is filed.  The documents must be amended on an ongoing basis during the time the chapter 13 is pending.

The failure to amend the chapter 13 documents three after filing the bankruptcy case is what doomed the debtor’s employment discrimination case in Jones v. Bob Evans Farms.  This result can be avoided by other debtors if the bankruptcy lawyer takes care to explain the consequences of failing to amend the documents to the bankruptcy debtor.

(Image used by permission, Fotolia.)

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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