Disclosure of Post-Petition Claims
order a schedule to be amended . 11 U . S . C . § 350 ( b ) allows a bankruptcy case to be reopened to administer assets , accord relief to the debtor , or for other cause . See also Bankruptcy Rule 5010 on reopening cases .
Other courts agree and have determined that judicial estoppel should not be automatically applied when a claim was not disclosed on an amended schedule . Slater v . United States Steel Corp ., 27 Fla . L . Weekly Fed . C 190 ( U . S . 11th Cir . 2017 ) (“… whether a plaintiff intended to make a mockery of the judicial system requires consideration of more than just whether the plaintiff failed to disclose a claim .”) ( overruling Burnes and Barger above ); Spaine v . Cmty . Contacts , Inc ., 756 F . 3d 542 , 548 ( 7th Cir . 2014 ) ( reversing application of judicial estoppel because the civil defendant “ needed to show more than an initial nondisclosure on a bankruptcy schedule ”); Ah Quin v . Cty . of Kauai Dep ’ t . of Transp ., 733 F . 3d 267 , 276 ( 9th Cir . 2013 ) ( rejecting a “ presumption of deceit ” where “ the plaintiff-debtor has reopened the bankruptcy proceedings and has corrected the initial filing error ”); Eubanks v . CBSK Fin . Grp ., Inc ., 385 F . 3d 894 , 899 ( 6th Cir . 2004 ) ( reversing district court ’ s application of judicial estoppel where plaintiffs omitted the claim because defendant “ provide [ d ] no additional evidence that Plaintiffs demonstrated fraudulent intentions towards the court ”).
Practice suggestions :
So , back to the irate phone call from your client . First gather information from your client including the following : ( 1 ) the date the injury occurred , ( 2 ) a description of the injury , ( 3 ) the name of the court and the case number of the lawsuit , ( 4 ) the name , address and telephone number of debtor ’ s attorney , ( 5 ) the names of other parties ( and their attorneys ) to the lawsuit ( e . g . other plaintiffs , defendants etc .) and ( 6 ) the procedural status of the lawsuit ( e . g . pending motion to dismiss ).
Your client certainly has defenses to the Defendant ’ s motion to dismiss , but I recommend disclosing the information immediately to the bankruptcy court and the trustee . If the injury occurred prior to filing the client ’ s bankruptcy petition , prepare an amended B and statement of financial affairs to disclose the claim . If the injury occurred after filing then prepare an amended schedule B . Send the documents for your client ’ s approval and signature . File the documents amendments and serve pursuant to Bankruptcy Rule 1009 ( a ). In addition , it is recommended that you serve the amendments on all creditors , the trustee and the United States Trustee along with all parties to the pending lawsuit .
Contact your client and update them with what has been done and ask their counsel to call you if they have any questions . If the motion to dismiss is not resolved by filing the amendments it is recommended you contact Tara Twomey to discuss further . You may also want to contact your malpractice insurance carrier to get their advice .
To protect yourself and your clients in the future , advise your clients to notify you if their financial situation changes and if they obtain any new assets / claims . I usually have my client ( s ) sign an acknowledgment , during the appointment to review and sign their bankruptcy petition , that includes the following language :
In addition , I understand that if I acquire any new assets while my CH13 Bankruptcy is still open , I must immediately report this to my attorney who will prepare an amended Schedule B to list that asset and its potential value , if any . These future assets include but are not limited to any lawsuits , personal injury claims , workers compensation claims , inheritances , life insurance policies , or lottery winnings , etc . I understand I am not allowed to spend any money received from these or any other claims or rights until my bankruptcy attorney has approved it in writing . I understand that my recovery under these claims may have to be paid into the bankruptcy to increase the disbursement to my creditors . Failure to disclose this information to my attorney may result in dismissal of my bankruptcy and / or criminal prosecution .
You may want to adjust this language for your particular jurisdiction . Explain to the client the likelihood of turnover and the importance of staying in touch with you .
Final thought : If you get the call don ’ t panic , just disclose the claim . Many issues are resolved by simply disclosing the information .
National Association of Consumer Bankruptcy Attorneys Winter 2018 CONSUMER BANKRUPTCY JOURNAL 23