THE IMPORTANCE OF PERFORMING BANKRUPTCY CHECKS ON PERSONAL INJURY CLAIMS IN GEORGIA: Basics of Bankruptcy Disclosure in Georgia
By: Jack McCall
When debtors file for bankruptcy, they are required to disclose, under oath, all their assets and liabilities to the Bankruptcy Court. Specifically, debtors must disclose, “[c]laims against third parties, whether or not [they] have filed a lawsuit or made a demand for payment. Examples: accidents, employment disputes, insurance claims, or rights to sue.” (Bankruptcy Official Form 106A/B, question 33.) Therefore, potential income from a personal injury claim is considered an asset that a debtor is required to disclose.
When debtors file for bankruptcy, all of their property becomes part of the bankruptcy estate. 11 U.S.C. § 541(a)(1) (The bankruptcy estate includes “all legal and equitable interest of the debtor in property as of the commencement of the case.”). The property interests comprising the estate include potential personal-injury claims. United Technologies Corp. v. Gaines, 225 Ga. App. 191, 192 (1997).
When property becomes part of a debtor’s bankruptcy estate, the bankruptcy trustee is the only party who may administer those assets and, therefore, is the only party who can file suit based upon the accrued claim. Id. Likewise, an asset that has not been administered by the close of the bankruptcy proceeding remains within the bankruptcy estate. Id.
The requirement that a debtor disclose all potential claims is clear. However, some less scrupulous or diligent claimants may fail to list a personal injury claim on their bankruptcy schedule and unfairly seek to discharge their debts without giving their creditors access to potential personal injury claims.
Effect of Failing to Disclose Personal Injury Claim in Bankruptcy Proceeding
The federal doctrine of judicial estoppel precludes a party from asserting a position in a judicial proceeding which is inconsistent with a position successfully asserted by it in a prior proceeding. The doctrine of judicial estoppel preserves the integrity of the judicial forum by not permitting a debtor to manipulate the system. Cochran v. Emory Univ., 251 Ga. App. 737, 738 (2001); Cochran, 251 Ga. App. at 738. This doctrine is commonly applied to preclude bankruptcy debtors from pursuing a claim they failed to include in their bankruptcy petition. Id.
When an adverse party fails to disclose a civil lawsuit as an asset in bankruptcy filings,1 the Eleventh Circuit and Georgia employ “a two-part test in applying judicial estoppel: whether (1) the party took an inconsistent position under oath in a separate proceeding, and (2) these inconsistent positions were 'calculated to make a mockery of the judicial system.’” Fulton Cnty. v. Ward-Poag, 310 Ga. 289, 295 (2020), reconsideration denied (Nov. 2, 2020).
The first element will almost always be met as the bankruptcy petition must be made under oath. The second element of making a “mockery of the judicial system” can be met if the debtor intentionally failed to disclose their personal injury claim or even if the debtor was negligent in disclosing the claim.
In Byrd v. JRC Towne Lake, Ltd., 225 Ga. App. 506, 507 (1997), the court found neither the plaintiff's "neglect in failing to read the schedule nor any neglect she [attributed] to her attorney [was] a ground for relieving her of the duty to disclose the claims in the bankruptcy case." Id. at 508. Indeed, judicial estoppel applies even in a case in which the plaintiff made a disclosure to the Bankruptcy Court that was deemed insufficient. In Harper v. GMAC Mortg. Corp., 245 Ga. App. 729 (2000), the debtors filed a lawsuit seeking injunctive relief and damages. “In the bankruptcy petition, the (plaintiffs) listed the pending suit in the statement of financial affairs and described it as being ‘Injunctive/Declaratory Relief,’ but they did not list the damage claims in their schedule of assets.” Harper, at 730. As a result, the debtors were estopped from asserting their claim in the subsequent civil action. Id.
Likewise, in Reagan v. Lynch et al., 241 Ga. App. 642 (1999), the plaintiff informed the bankruptcy trustee of his claim. However, the plaintiff failed to formally amend his bankruptcy petition to include the claim and as a result was estopped from asserting the claim. Id. Moreover, merely amending the bankruptcy petition to reveal the existence of a previously undisclosed cause of action will not automatically allow a plaintiff to avoid judicial estoppel. Fulton Cnty., 310 Ga. at 295.
Thus, to avoid judicial estoppel, bankruptcy debtors must fully and unambiguously disclose their personal injury claim on their bankruptcy petition. If a claim arises after the bankruptcy petition was filed but before the debts are discharged, then the debtor must immediately amend the bankruptcy petition to disclose the claim. Failure to be forthright about the existence of claims can lead to the estoppel of those claims.
Personal injury claims can take years to process from the date of the injury to a final resolution. However, a bankruptcy petition can be fully processed in a matter of months. As a result, a bankruptcy check should be made at critical stages of a claim, such as the initial notice of the claim, the filing of the complaint and prior to trial as this may reveal that the claim is barred by judicial estoppel.
1The analysis for judicial estoppel applies equally in Chapter 13, Chapter 7 and Chapter 11 bankruptcy cases. Reynaud v. Five Oaks Dev., Inc., 359 Ga. App. 606, fn. 4 (2021).
Attorney Contact Info
Jack McCall
jack.mccall@swiftcurrie.com
404.888.6152