Potential lawsuits are assets that must be disclosed to the Bankruptcy Court

Lawsuits are assets that must be disclosed to the Bankruptcy Court

I just filed a case where we listed a potential FDCPA claim in my client’s bankruptcy schedules. She had been harassed by a debt collection agent who had left an inappropriate voicemail on my client’s answering machine. It was heard by people who were beyond the scope of FDCPA communication and it was not only rude, it was downright obnoxious!

So when we prepared her bankruptcy to get rid of the debt, we also included the potential claim for the FDCPA as one of her assets. Even better, we exempted the asset out so the trustee couldn’t seize the case.

The number one rule of bankruptcy is full disclosure

Bankruptcy law requires that you include all of you assets and all of your liabilities. Assets can also include potential cases you may have against other people such as FDCPA claims, Personal Injury Claims, or even small claims judgments. All of these are assets in your estate because the possibility exists that they could be converted into money for distribution to creditors.

If You Do Not List the Lawsuit as an Asset, It is Wiped Out!

Now, here is the reason you need to claim the potential asset. If you don’t name it as part of your bankruptcy estate, then it is wiped out. If you didn’t claim the asset and tried to prosecute the claim later, the defense would be able to dismiss your suit under the theory or res judicata.

It’s happened to a pro se debtor and an inexperienced bankruptcy attorney more than once. The debtor’s failure to claim the personal injury suit in the schedules resulted in not only the debtor’s inability to prosecute for the personal injury claim, but the Court revoked her discharge as well for failure to disclose assets. This is not a situation you ever want to find yourself in.

So the lesson for today is “You have to Name it to Claim it!” If you claim the asset, even if the potential case isn’t fully developed, you’ve protected yourself.

A personal injury example

I recently had a case where we claimed a potential personal injury suit. My client had not been to see a personal injury attorney yet so we had no idea how much her claim was worth. I listed an unknown claim and reserved my client’s right to amend. Three years later, I received a phone call from the trustee who told me that the case had settled. He told me what the settlement amount was and I said “I’ll amend the schedules for that amount.” The next thing he asked me was where he should send the check. My client had a nice payday as a result of naming her claim in the original bankruptcy schedules filed way back when.

So, remember, you need to list all of your assets, even the ones that haven’t fully matured yet.

Jay S. Jump
(253) 479-0241
528 2nd Avenue South
Kent, WA 98032
www.jumplawgroup.com