by Andy Jones
Many times, if a person has a bankruptcy in their past, it most often has implications in areas of the law other than personal injury, like in a real estate transaction. Or, if it comes up in personal injury, a bankruptcy is most likely to have an impact post-settlement or judgment only. Right?
Not necessarily. In certain situations, a person’s filing for bankruptcy and failing to disclose a potential or active personal injury claim in the bankruptcy proceedings could judicially estop them from pursuing a personal injury lawsuit. Here is what you need to know to advise a client about the impact a past (or pending) bankruptcy could have on their personal injury case.
First, judicial estoppel is a common law doctrine used to prevent a party from assuming inconsistent positions in different courts and cases on the same issue.[1] The elements of judicial estoppel are:
- the party to be estopped has taken a position clearly inconsistent with its previous position;
- the previous court must have accepted the previous position; and
- the party to be estopped has acted intentionally, not inadvertently.[2]
For the purposes of this article, the focus is on the first element – taking an inconsistent position – and the role a bankruptcy proceeding can play in establishing or disproving that element.[3]
The U.S. Bankruptcy Code places an affirmative duty on a debtor in bankruptcy to disclose assets, including contingent and unliquidated claims.[4] This includes potential personal injury claims.[5] Therefore, if a bankruptcy debtor has a personal injury claim – or knows of the potential for one in which they have an interest – they have a duty to disclose it to the bankruptcy court.[6]
This rule is not absolute, and its application depends on the type of bankruptcy filed.
There are generally three types of bankruptcies – Chapter 7, Chapter 11, and Chapter 13. When a person files for Chapter 7 Bankruptcy, a bankruptcy estate is formed at the time of the filing of the petition for bankruptcy.[7] Importantly, post-petition legal claims, e.g. personal injury claims, are the property of the Chapter 7 Bankruptcy petitioner and not the bankruptcy estate.[8] A legal claim, without roots in the time before the petition, is not part of the bankruptcy estate.[9] To include such claims is inconsistent with the Bankruptcy Code and public policy – especially for post-petition personal injury claims.[10] A Chapter 7 Bankruptcy estate does not include assets (including legal claims) acquired after a Chapter 7 Bankruptcy petition is filed.[11]
In a Chapter 7 Bankruptcy, a petitioner must schedule all of their interests in property (including claims or causes of action) as of the commencement of the bankruptcy case for their inclusion in the bankruptcy estate.[12] A Chapter 7 Bankruptcy petitioner has no duty to disclose or amend their schedules with any property (including persona injury claims) acquired after the date of filing the petition for Chapter 7 Bankruptcy.[13]
Thus, not including a post-petition asset or claim in a Chapter 7 Bankruptcy schedule is not an inconsistent position for judicial estoppel. For example, in the In re Wakefield case, the Chapter 7 Bankruptcy petitioner did not include on his schedules a claim for wrongful termination which accrued after filing his bankruptcy petition.[14] The defendant in the wrongful termination claim moved to dismiss the wrongful termination claim based on judicial estoppel for failing to disclose the claim on the bankruptcy schedules.[15] However, the bankruptcy court held that the wrongful termination claim did not exist prior to filing the bankruptcy petition.[16] Therefore, petitioner was not required to disclose the claim and, as such, did not take an inconsistent position under the doctrine of judicial estoppel.[17] Notably, the In re Wakefield case is sharply critical of the Coastal Plains case.[18]
Judicial estoppel has been found to be inapplicable to other cases involving post-petition claims not included in a bankruptcy proceeding. For example,
- Sherman v. Wal–Mart Associates, Inc.[19] – A post-petition claim for employment discrimination was not property of the Chapter 7 bankruptcy estate and was not required to be disclosed in the bankruptcy proceeding.[20] Thus, judicial estoppel was inapplicable as no inconsistent position was taken.
- Tate v. Veolia Transp. Services, Inc.[21]– Post-petition employment discrimination and retaliation claims were not part of the Chapter 7 Bankruptcy estate and were not required to be disclosed in the bankruptcy proceeding. Thus, judicial estoppel was not applicable as no inconsistent position was taken.
- Lone Star Engine Installation Ctr., Inc. v. Gonzales [22] – judicial estoppel inapplicable in a case where bankruptcy petitioner did not disclose post-petition civil claims for car repairs against a bankruptcy creditor.
- See also In re Wakefield, supra.
Key to addressing this issue with a client is to determine under which Chapter of the Bankruptcy Code filed for bankruptcy. If a client filed a Chapter 7 Bankruptcy petition, the rules of Chapter 7 apply – not Chapter 11 or Chapter 13.[23] But, if a client filed under Chapter 11 or 13, judicial estoppel likely applies. For example, in Horsley-Layman v. Adventist Health Sys./Sunbelt, Inc., a medical malpractice claimant failed to disclose her medical malpractice claim in a Chapter 13 Bankruptcy case.[24] The Horsley-Layman Court assessed the estoppel issue under Chapter 13 Bankruptcy and not under Chapter 7 Bankruptcy.[25] Based on a Chapter 13 analysis, the Fort Worth Court of Appeals held that judicial estoppel applied. However, if a client filed under Chapter 7, and the facts of the personal injury arose post-petition, failing to disclose it is not an inconsistent position for purposes of judicial estoppel. [26] And, if there is no inconsistent position taken, then the first element is not met, and judicial estoppel does not apply.
In the end, the most important issues when advising a client on the impact a bankruptcy may have on their personal injury claim are:
- What kind of bankruptcy did your client file?
- When did they file it?
- When did the personal injury occur?
- When, if it has, did the bankruptcy proceedings conclude?
Knowing those key facts, and the application of the three types of bankruptcies to those facts, will go a long way in advising your client and protecting their potential claim.
____________________
Andy Jones is a Trial Attorney at Sawicki Law and President-Elect of the Dallas Association of Young Lawyers. He can be reached at ajones@sawickilawfirm.com.
____________________
[1] Cricket Communications, Inc. v. Trillium Industries, Inc., 235 S.W.3d 298, 304 (Tex. App.—Dallas 2007, no pet.).
[2] Id. at 304–305.
[3] To learn more about the elements of Judicial Estoppel please see “You Can’t Say That! What you Need to Know About Judicial Admissions and Estoppel,“DAYL Dicta, July 2017.
[4] Cricket Communications, Inc., 235 S.W.3d. at 304-305.
[5] See Horsley-Layman v. Adventist Health System/Sunbelt, Inc., 221 S.W.3d 802, 805-806, 808 (Tex. App.—Fort Worth 2007, pet denied) (internal citations omitted).
[6] Id.
[7] 11 U.S.C. 301(a); 11 U.S.C. 541(a).
[8] In re Rhinesmith, 450 B.R. 630, 632 (Bankr. W.D. Tex. 2011); In re Durrett, 187 B.R. 413, 416 (Bankr. D.N.H. 1995).
[9] Id. at 632-34; see also In re Doemling, 127 B.R. 954, 955 (W.D. Pa. 1991) (holding that a motor vehicle collision claim accruing five months after bankruptcy petition filing was not part of the bankruptcy estate).
[10] See id. at 636.
[11] Harris v. Viegelahn, 575 U.S. 510 (2015); see also In re Wakefield, 312 B.R. 333, 338 (Bankr. N.D. Tex. 2004).
[12] In re Wakefield, 312 B.R. at 337 (citing 11 U.S.C.541(a)(1)).
[13] Id. at 339; see also In re Davis, 253 F.3d 807, 810 (5th Cir. 2001); Sherman v. Wal–Mart Associates, Inc., 550 B.R. 105, 109 (N.D. Tex. 2016); Tate v. Veolia Transp. Services, Inc., 2010 WL 11598051 at *10 (W.D. Tex. 2010); In re Doemling, 127 B.R. at 955; Lone Star Engine Installation Ctr., Inc. v. Gonzales, 2016 WL 2765079 at *8 (Tex. App.—Dallas 2016), judgment set aside, opinion not vacated sub nom. Lone Star Engine Installation Ctr., Inc v. Gonzales, 2016 WL 2941172 (Tex. App.—Dallas May 2016, pet. denied).
[14] In re Wakefield, 312 B.R. at 335, 337-8.
[15] Id. at 336.
[16] Id. at 337-8.
[17] Id. at 338-9.
[18] Id.
[19] 550 B.R. 105, 109 (N.D. Tex. 2016).
[20] This case affirmatively cites In re Wakefield.
[21] 2010 WL 11598051 at *9-11.
[22] 2016 WL 2765079 at *8.
[23] See, supra, ¶¶ 10-12; see also In re Wakefield, 312 B.R. at 338 (stating that the provisions of Ch. 11 do not apply to Ch. 7 bankruptcies).
[24] Horsley-Layman v. Adventist Health Sys./Sunbelt, Inc., 221 S.W.3d at 805.
[25] See, e.g., In re Wakefield, 312 B.R. at 335, 337-8 (holding petitioner has no duty to disclose post-petition assets or claims).
[26] In re Wakefield, 312 B.R. at 339; Sherman, 550 B.R. at 109; Tate, 2010 WL 11598051 at *10; Lone Star Engine Installation Ctr., Inc. v. Gonzales, 2016 WL 2765079 at *8.
____________________
Articles on the DAYL website are provided for informational use only, and are in no way intended to constitute legal advice or the opinions or views of the DAYL.