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Bankruptcy Cases in the News

Bankruptcy Cases in the News

The 6th Circuit Court of Appeals issued an important and very interesting case recently in White v. Wyndham Vacation Ownership, Inc., 617 F3d. 472 (2010). This Court is the Court of Appeals for a great number of Midwestern Bankruptcy Courts, including the State of Michigan. The White case shows the importance of full disclosure of all assets in a consumer bankruptcy case. As we have discussed in the past blog postings, failure to make full disclosure can result in the dismissal of a case, attorney fees and in some instances, criminal charges.

The White case dealt with an interesting additional concept called “judicial estoppel.” Here is what happened. When Mrs. White signed and filed her bankruptcy petition she forgot to list as a possible asset of a lawsuit against her former employer, Wyndham. Apparently, the reason she had financial problems was because she had been discharged under circumstances which were suspicious of employment discrimination. A potential lawsuit is an asset.

Neither in her plan, nor in her schedules did she disclose to the Bankruptcy Court or her creditors that she had a significant cause of action for employment discrimination against her former employer, Wyndham. After her plan was approved and before she filed suit against Wyndham, she made some attempts to modify her bankruptcy schedules regarding the employment claim. Still, the U.S. District Court dismissed her lawsuit for discrimination, at her former employer’s request, based upon judicial estoppel and the 6th Circuit affirmed the dismissal. The 6th Circuit discussed in the opinion the doctrine of judicial estoppel:

    In the bankruptcy context, this court has previously noted that “judicial estoppel” bars a party from (1) asserting a position that is contrary to one that a party has asserted under oath in a prior proceeding, where (2) the prior court adopted the contrary position either as a preliminary matter or as part of a final disposition. [Citations omitted.] Id. At 476.

The White court noted that the doctrine was “utilized in order to preserve the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship.” Id. The Court further noted that it is the debtor’s absolute duty to disclose all assets to the Bankruptcy Court pursuant to various statutes in the Bankruptcy Code. Further, that based upon the purposes of bankruptcy:

  “[W]hen a bankruptcy court – which must protect the interest of all creditors – approves a payment from the bankruptcy estate on the basis of a party’s assertion of a given position that in our view is sufficient ‘judicial acceptance’ to estop the party from later advancing an inconsistent position.” [Citations omitted.]. Id. At 479.

The omission to list property or the true value assets is viewed as very significant when compared to the purpose of bankruptcy law. The White court specifically noted:

    “[T]he disclosure obligations of consumer debtors are at the very core of the bankruptcy process and meeting these obligations is part of the price that debtors pay in receiving the bankruptcy discharge. [Citations Omitted.] Viewed against the backdrop of the bankruptcy system and the ends it seeks to achieve, the importance of the disclosure duty can not be over emphasized. Id. At 480.

Dismissal of a significant claim was a drastic remedy. However, it was a remedy necessary to protect the bankruptcy court system. Had Mrs. White disclosed the Trustee might have brought the claim and any settlement or judgment could have been used to pay her creditors which would have got her out of her plan sooner, helping her and her creditors. When you and your bankruptcy lawyer file a petition for bankruptcy, yours assets (subject to proper exemptions) are no longer yours. The trustee has a right to bring those cases for the benefit of all administrative claimants and creditors. If all these folks get paid and there is money left over, the debtor will receive the balance.

The importance of the disclosure duty can not be over emphasized. Be sure to disclose all potential claims with your bankruptcy attorney. Otherwise, you will jeopardize your fresh start.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in the city of 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.]