The United States Bankruptcy Code requires a debtor to list all assets and liabilities, as well as all income and expenses. The listing of assets allows the bankruptcy trustee and court to determine whether there are any actual or potential funds to satisfy creditors.
One kind of asset is the debtor’s potential recovery in a claim or in a lawsuit filed or to be filed. That is considered to be property of the bankruptcy estate. This would include for example a personal injury claim for damages sustained by the debtor. This claim must be listed and the bankruptcy trustee will inquire of the debtor’s personal injury attorney as to the expected amount to be recovered. If the expected amount exceeds the debtor’s exemptions, then the bankruptcy trustee is likely to hold a Chapter 7 case open until the personal injury recovery is completed. In a Chapter 13 case, the debtor’s plan must indicate that the recovery will be available for distribution to creditors. Upon recovery, the debtor’s personal injury attorney must remit the debtor’s portion of the recovered funds (less exemptions) to the bankruptcy trustee for distribution to creditors.
Occasionally a debtor will intentionally conceal the claim from his attorney, the trustee and the court. That is considered to be bankruptcy fraud, punishable by fines and imprisonment.
Another consequence of a debtor’s failure to list a claim on his bankruptcy petition is that the debtor may then be barred from pursuing the claim based on the principle of judicial estoppel. In other words, the debtor is assumed by failing to list a claim, to have no claim. This allows the responsible party to seek dismissal of the claim, even if the claim is potentially worth far more than the debtor’s liabilities in the bankruptcy case.
It is therefore crucial that a debtor disclose any and all claims to his bankruptcy attorney so that those claims may be listed on the bankruptcy petition. I have more than 40 years experience as a New Jersey bankruptcy attorney. I will competently advise you and protect your rights. Call me today for a free initial consultation.
