Bankruptcy Cases in the News
In recent blogs we have discussed the necessity to scrupulous honesty in preparing all schedules with respect to a bankruptcy petition. It all goes back to the basic concept that it is only the honest debtor that is entitled to a discharge and a fresh start. In that regard, this post has to examine some federal cases which dealt with the concept of judicial estoppel.
Judicial estoppel is a common law concept for the protection of the Courts from a party seeking and obtaining a certain determination in one Court and then taking the opposite position in another Court.
Recently, the Michigan Court of Appeals, in Spohn v. Van Dyke Schools, examined such a case and affirmed (agreed with) the decision of a trial court judge, which dismissed the Plaintiff’s claim for employment discrimination. Specifically, the trial court judge determined that the Plaintiff had filed an earlier bankruptcy and failed to disclose in her Schedule B, statement of personal property, that she had a potential claim for an employment discrimination suit. When the Plaintiff received her discharge, it was based upon the representation that she did not have such a claim and that constituted a binding determination.
Plaintiff should have disclosed the claim. The bankruptcy trustee would then determine whether to bring the claims for the benefit of all the creditors or to abandon the claim, if it was weak. Clearly the Plaintiff knew she had a claim, failed to disclose it to the Bankruptcy Court, trustee or creditors and then filed the same later in another court.
The Michigan Court of Appeals stated the rationale as follows:
The rationale for… decisions [invoking judicial estoppel to prevent a party who failed to disclose a claim in bankruptcy proceedings from asserting that claim after emerging from bankruptcy] is that the integrity of the bankruptcy system depends on full and honest disclosure by debtors of all of their assets. The courts will not permit a debtor to obtain relief from the bankruptcy court by representing that no claims exist and then subsequently to assert those claims for his own benefit in a separate proceeding. The interests of both the creditors, who plan their actions in the bankruptcy proceeding on the basis of information supplied in the disclosure statements, and the bankruptcy court, which must decide whether to approve the plan of reorganization on the same basis, are impaired when the disclosure provided by the debtors in incomplete.
The debtor signed her bankruptcy petition under penalty of perjury. By doing so, she certified that she had no claims against the Defendants. It was the Debtor’s responsibility to verify the accuracy of the information contained in her schedules and statement of financial affairs and she “had the duty to carefully consider all of the questions posted and to see that they [were] completely and correctly answered.”
It is therefore a cardinal rule to always disclose. Making unnecessary disclosure will never hurt the honest debtor, but failure to disclose may very well be a source of trouble, including denial of discharge, judicial estoppel, and even criminal charges.
If you have a question about the Bankruptcy Laws, please feel free to call Guy Vining of the Vining Law Group for a no charge and confidential consultation.
[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]