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Employment Discrimination Lawsuit is Dismissed After Plaintiff Fails to Disclose it in a Bankruptcy Proceeding

The United States Court of Appeals for the D.C. Circuit recently released a decision affirming a lower court’s ruling dismissing a plaintiff’s employment discrimination lawsuit against her former employer. The ruling was not based on the merits of the lawsuit itself but on the fact that the plaintiff failed to disclose the case in a prior Chapter 7 bankruptcy proceeding. The ruling, based on the principle of judicial estoppel, was entered by the lower court based on the equitable consideration that a party should be prohibited from asserting a claim in a legal proceeding that is inconsistent with a position taken by that party in a previous proceeding. Based on the latest ruling, the plaintiff will be unable to take her employment discrimination case to trial to recover compensation on the claim.

GavelThe Plaintiff Was Required to Disclose All Pending Lawsuits or Claims to the Bankruptcy Court

U.S. bankruptcy cases require a debtor to disclose all of their assets and liabilities to the court so that a resolution can be reached that upholds the rights of the creditors to collect on any of the debtor’s debts before they are discharged. A pending civil lawsuit or administrative claim is a potential asset in the eyes of the bankruptcy code because the plaintiff may recover valuable damages as part of their claim, and the bankruptcy trustee has the right to know about a possible source of additional assets of which the debtor may be in control before agreeing to a discharge. The plaintiff in the case of Marshall v. Honeywell Technology Systems filed for bankruptcy after she filed the wage discrimination lawsuit, but she failed to include the civil case on the required bankruptcy schedule, and the trustee had no knowledge of the plaintiff’s civil claim until after her bankruptcy had been confirmed.

The Defendant in the Wage Discrimination Lawsuit Is Able to Have the Case Dismissed

Since the plaintiff appeared to have purposely excluded the civil claim from her bankruptcy schedule in an effort to deceive the bankruptcy trustee and keep the possible damages from her creditors, the defendant was able to have the case dismissed on the principle of judicial estoppel. The district court found that a debtor in bankruptcy who denies owning an asset, including a legal claim, cannot realize the concealed asset after the bankruptcy ends. Although the ruling favors the civil defendant by denying the plaintiff’s claims without analyzing the case itself, the district court and the D.C. Circuit on appeal agreed that the plaintiff must not benefit from her failure to include the lawsuit in a sworn statement made under penalty of perjury that stated otherwise. Since the courts agreed that the plaintiff’s bad-faith action in not disclosing the lawsuit benefited her and hurt her creditors, the interests of equity required that the plaintiff’s civil claim be denied.

Financial Assets Can Be Protected or Exempted from a Bankruptcy, But They Must Be Disclosed

It may be tempting for a debtor going through bankruptcy to try to conceal some assets from the bankruptcy court in an effort to regain control of the assets after the bankruptcy is complete, but concealing the assets in an impermissible way may cause the plaintiff to completely lose control of the assets, based on the principle of judicial estoppel. There are ways for a bankruptcy debtor to legally transfer property to another party or place it into a trust and protect it from bankruptcy. Some types of bankruptcy proceedings are also designed to allow debtors to keep their assets if they complete a partial repayment plan, although these assets must be disclosed. Some assets may not need to be disclosed to a bankruptcy court, but a debtor anticipating bankruptcy must still be truthful to their bankruptcy attorney to have a strong chance of protecting their assets.

Consult With a Qualified Bankruptcy Attorney About Your Financial Situation

If you or a loved one is considering Chapter 7 bankruptcy but is unsure of whether the property you currently possess can be protected, a consultation with an experienced bankruptcy attorney may clear up many of your questions and set the stage for your debts to be discharged. The Louisville and Southern Indiana bankruptcy attorneys at the Schwartz Bankruptcy Law Center know the complex rules and regulations that apply to bankruptcies, and we can assist you in protecting the assets that you want to keep while discharging the debts that you are unable to pay. Our bankruptcy attorneys help clients nationwide get their financial lives back together. Call 866-366-3328 today to schedule a risk-free consultation or contact us through our website.

More Blog Posts:

Ninth Circuit Dismisses Bankruptcy Appeal as Moot After Debtor Fails to Block Sale of All Relevant Assets and Dismissal of Underlying Bankruptcy, Kentucky Bankruptcy Lawyers Blog, published June 17, 2016.

Federal Appeals Court Declines to Apply Equitable Tolling to Block Alleged Fraudulent Transfer, Kentucky Bankruptcy Lawyers Blog, published June 30, 2016.

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