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