If you have a legal claim against someone, and you intend to file bankruptcy, you had better list the claim as an asset on Schedule B of your petition. Even if you’re not sure if you have a claim because you haven’t consulted with an attorney yet, or the claim is contingent upon the happening of some event, list it! If you don’t, and you later assert the claim, the person you are suing may have a good defense that proves fatal to your lawsuit, leaving you without any legal remedy.
Filing bankruptcy results in the creation of the “bankruptcy estate.” As a general rule, the bankruptcy estate consists of all legal and equitable interests you have in any property, anywhere, before your case is filed. 11 U.S.C. 541 In addition, the bankruptcy estate in a chapter 13 bankruptcy consists of all property acquired post-petition (after your case is filed) while your case is pending. 11 U.S.C. 1306 Whether its tangible personal property like a vehicle, or an intangible intellectual property interest, it is included in the bankruptcy estate whether or not you list it. Let me say that again, it is property of the bankruptcy estate regardless of whether you disclose it in your bankruptcy petition. Yes, you guessed it, that legal claim you may have against that person who rear-ended you last week, or your former employer who wrongfully terminated you, is an asset of the bankruptcy estate and must be disclosed in your bankruptcy.
Where you have a claim but don’t disclose it, you lack standing to later assert the claim. This is because the trustee administers the bankruptcy estate and only the trustee has the power and authority to assert the claim once your bankruptcy case is filed. If the trustee decides not to pursue the claim, she abandons the claim back to you, the debtor, and your authority to assert the claim is restored. However, where the claim is never disclosed and never administered by the trustee, it cannot be abandoned, and it remains property of the bankruptcy estate. As such, you lack “standing” to later assert the claim. Essentially, you don’t own the claim anymore, the bankruptcy estate does. Not the position you want to be in after spending all that money on a lawyer, filing a lawsuit, etc.
In addition to lack of standing, the doctrine of judicial estoppel may also apply. The doctrine of judicial estoppel prevents litigants from taking inconsistent positions in legal proceedings which would result in unfair advantage and make a mockery of the judicial system. In the bankruptcy context, judicial estoppel prevents the debtor from representing in his bankruptcy petition that he doesn’t have any legal claim(s), and then later file a lawsuit based on such claim(s). The doctrine of judicial estoppel protects the integrity of the judicial system by preventing litigants from playing fast and loose with the court.
In summary, if you think you may have a claim against someone, but you’re not sure, be on the save side and list it in your bankruptcy petition. The penalty for failing to do so is extremely harsh.