TImeless Wisdom Doesn’t Apply When Filing Bankruptcy

“Don’t count your chickens before they hatch”.  It’s a time-tested bit of folk wisdom.

But applying that kind of thinking when you’re filling out bankruptcy schedules is foolish.

Worse, it can get you booted out of court.

Count your “chickens”

Bankruptcy starts with a list of what you own and what you owe when you file your case.

The bankruptcy bargain is this:

• the debtor ( the person filing for debt relief)  makes full disclosure of all of his assets.
• creditors may get the value of those assets that aren’t protected by an exemption.
• the debtor gets a discharge of his debts.

The law deems that a legal claim exists when the facts that give you a right to a recovery happen.

It doesn’t matter that you don’t know if your claim is good or how much it’s worth.  It’s a claim when the accident happens.  (In the words of our proverb, you have a “chicken” at that point).

The bankruptcy bargain requires that you list the claim when you disclose your assets.  Disclosure is the name of the game.

Failure to disclose assets can result in losing your bankruptcy discharge.  More frequently, however, the debtor falls victim in another court.

Sneaky lawyer tricks

Lawyers defending personal injury law suits love to scrutinize the bankruptcy filings of accident victims looking for mention of the legal claim they are fighting.  If it’s missing from the bankruptcy papers filed with the bankruptcy court, an alert defense lawyer will try to throw the personal injury case out of court.

Why?  Because courts have developed a rule to penalize people who take one legal position in one court, and a contrary position in another court.  The principle is called “judicial estoppel“.

It’s a mouthful, but it boils down to this:  if you told one court that you didn’t have a claim for an injury, you can’t come into a second court to recover for that injury.

If the claim was omitted from the bankruptcy papers, it’s treated as if you told the bankruptcy court no such claim existed.

The injured party ends up losing the damage case, not because the case was without merit, but because they didn’t understand that the collection of rights underlying their claim was an “asset” in the thinking of the bankruptcy system.

Keep counting

So, if you’ve suffered a loss or have a claim against another that you haven’t yet filed with a court and are considering bankruptcy,  make sure that you tell your bankruptcy lawyer about your accident.

Capable counsel can help you decide whether your claim is exempt or whether the timing is right to file for bankruptcy relief.

Silence about your accident claim is not golden.

More

Why bankruptcy papers are so complicated

Making sure everything necessary is listed

Image courtesy of Kirsty S.