Bankruptcy Can Prevent Recovery in Non-Bankruptcy Lawsuits…

Filing a Bankruptcy suit can be very beneficial to debtors in need of a discharge.  However, a Bankruptcy suit can be very detrimental to an unrelated civil lawsuit brought by a debtor in Bankruptcy.  Though the two suits have no other connection than a party in common, one can prevent recovery in the other.

It helps to first know that a debtor’s potential claim that could be brought against a person or entity in a civil suit, that could result in an award of money damages, is a contingent asset and considered property of the estate of a debtor in Bankruptcy.

In Alabama, like many other states, the equitable doctrine of judicial estoppel limits a party from taking a position in one judicial proceeding that is inconsistent with a position taken in another judicial proceeding.  The purpose of judicial estoppel is to protect the integrity of the judicial system and to prevent a party from gaining an advantage through intentional manipulation of the system.

Where a debtor files a Bankruptcy petition listing all of his assets, and fails to list a civil suit he is prosecuting from which he could recover damages, he could be judicially estopped (prevented) from recovering in his civil suit.  Though it is applied at the trial court’s discretion, the defendant in the debtor’s civil suit can argue that the plaintiff/debtor has taken inconsistent positions in two judicial proceedings, and should be prevented from recovering in the civil suit, regardless of whether or not those positions have actually caused harm to any other party and regardless of whether or not the omission of that asset was done with the intent to deceive one or both courts.

The solution? 

Tell your attorney in your civil suit if you 1) have filed a Bankruptcy petition, 2) have contemplated filing for Bankruptcy protection, or 3) have hired a Bankruptcy attorney or consulted with a Debt Relief Agency.  Similarly, tell your attorney in your Bankruptcy suit if you 1) have filed a civil suit, 2) have contemplated filing a civil suit, 3) have consulted with an attorney about filing suit, or 4) have hired an investigator to gather evidence to support your claim, and do so immediately after learning of the injury giving rise to that claim.