• Bruce W. Akerly

Dangers Of Failing To Disclose An Asset In Bankruptcy

In Allen v. C&H Distributors LLC, the debtors filed chapter 13. T They filed a chapter 13 plan. After 5 years of making payments the bankruptcy court closed the case without discharging the debtors because they failed to file documents showing they had completed an instructional course on personal financial management. The debtors then filed a personal injury lawsuit against C&H. The personal injury lawsuit was not disclosed in the debtor’s bankruptcy. C&H moved to dismiss the case under the doctrine of judicial estoppel. The doctrine of “judicial estoppel” has three elements: (1) the party against whom the doctrine is sought has asserted a legal position that is plainly inconsistent with a prior position taken in a legal proceeding, (2) a court accepted the prior position as being correct, and (3) the party did not act inadvertently. In this situation, the Fifth Circuit held that all three elements were met. First, the court held that the Allen’s had an affirmative duty to disclose the personal injury action in their bankruptcy. They failed to do so. As such, they impliedly represented they had no such claim. The omission was an admission in their case that no such claim existed which was clearly inconsistent with the position they were taking when they brought their personal injury lawsuit. Second, the court held that acceptance by a court of the prior position as being correct does not required a judgment to have been issued. Instead, as in this case, all that is required is that the first court – the bankruptcy court – have adopted a position urged by the Allen’s, i.e., that they had no personal injury action against C&H. Finally, the court held that the Allen’s did not act inadvertently in failing to disclose the personal injury lawsuit because they knew of the facts of the personal injury lawsuit during the pendency of their bankruptcy case and, therefore, had knowledge of its existence.