Failure to Disclose Claim in Bankruptcy Torpedoes Later Injury Suit

What happens if  (a) you get injured (and you aren’t at fault and have a claim against the person who injured you) after you file for bankruptcy but (b) before you get a discharge and (c) you don’t inform the bankruptcy court of this claim? 

That’s the question examined in Schoup v. Gore, 2014 IL App (4th) 130911 (4th Dist. 2014), a case that will doubtlessly serve as a cautionary tale and make bankruptcy petitioners think twice before not informing the bankruptcy court of a potential civil claim.

In Schoup, the debtor filed bankruptcy in 2010 and obtained a discharge in 2012.  Several months into his bankruptcy, he was injured when he tripped on private property.  This gave the debtor a future premises liability claim against the property owners.  The debtor didn’t tell the bankruptcy court or trustee of the premises suit until after his bankruptcy case was discharged.  

Fresh off his discharge, the debtor filed his premises suit against the property owners.  The owners moved for summary judgment on the basis of judicial estoppel.  They argued that the plaintiff’s failure to disclose the premises suit as an asset in his bankruptcy case barred the premises liability action.  The trial court agreed and entered judgment for the property owners.  Plaintiff appealed.

Ruling: Affirmed.

Q: Why?

A: The judicial estoppel doctrine barred the plaintiff’s premises liability suit.  Judicial estoppel prevents a litigant from taking a position in one case and then, in a later case, taking the opposite position (i.e., you can’t claim that you’re an independent contractor in one case and then in a second case, claim that you’re an employee.)  Judicial estoppel’s purpose is to protect the integrity of the court system and to prevent a party from making a mockery of court proceedings by conveniently taking whatever position happens to serve that party at a given moment.  (¶ 9).  Judicial estoppel applies where a party (1) takes two contrary positions in legal proceedings; (2) successfully maintains that first position and benefits from it.  In the post-bankruptcy setting, a debtor who fails to disclose an inchoate lawsuit can’t later realize a benefit from his concealment. (¶ 14).

The plaintiff here took two positions: he impliedly represented to the bankruptcy court that he had no pending lawsuits and then filed a personal injury suit in state court after discharge.  The two positions were taken in judicial proceedings (Federal bankruptcy court and Illinois state court) and under oath (the plaintiff signed sworn disclosures in the bankruptcy court and filed a sworn complaint in state court).  The plaintiff also obtained a benefit from concealing the premises liability case as he received a discharge without any creditor knowing about the state court claim.  (¶¶ 17-18).

Conclusion: From a defense posture, the case is a great reminder to always check on-line bankruptcy records to see if a plaintiff suing your client has any prior bankruptcies.  More than once I’ve found that a plaintiff recently received a discharge before filing suit and never disclosed the lawsuit as an asset in the bankruptcy case.  In those situations, the plaintiff, not wanting to deal with a judicial estoppel motion (like the one filed by the defendants in this case), is usually motivated to settle for a reduced amount and in one case, even non-suited the case. 

From the lens of a debtor, the lesson is to fully disclose all assets – even lawsuits that haven’t materialized on the bankruptcy filing date.  Otherwise, they run the risk of having a creditor challenge the discharge or even having a future lawsuit dismissed.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.