A lawsuit that you have filed against someone or something is an asset because it has the potential to provide you with financial benefit. Consumers are required to disclose their assets when filing for bankruptcy protection. A District Court judge in Washington refused to overlook a plaintiff’s omission of a Fair Debt Collection Practices Act lawsuit against a collection operation in her bankruptcy filing and granted the operation’s motion for judgment on the pleadings
The background: The plaintiff filed suit in state court alleging that the defendant, a collection operation, violated the FDCPA and state laws by continuing to report a debt as “disputed” even after she claimed to have withdrawn that dispute. The case was later removed to federal court.
- What complicated matters was timing. Just three weeks before filing the lawsuit, the plaintiff filed for Chapter 7 bankruptcy protection. In her bankruptcy schedules, she disclosed a personal injury claim as an asset but did not list her potential claims against the defendant, despite being aware of the underlying facts at the time.
- Her bankruptcy filings also included the very debt tied to the lawsuit, listing it as an unsecured obligation owed to the defendant. That debt was ultimately discharged.
- The plaintiff did not amend her bankruptcy filings to include the FDCPA claim, nor did she attempt to reopen the bankruptcy case before the issue was raised in litigation.
- The defendant moved for judgment on the pleadings, arguing that the plaintiff should be barred from pursuing the claim under the doctrine of judicial estoppel, which prevents parties from taking inconsistent positions in different legal proceedings.
The ruling: Judge Benjamin H. Settle of the District Court for the Western District of Washington agreed with the defendant and granted its motion, dismissing the claims with prejudice. In doing so, the judge leaned heavily on established precedent that requires full and honest disclosure of assets in bankruptcy, including potential legal claims.
- The judge emphasized that the plaintiff’s position in bankruptcy, where she failed to disclose the claim, was clearly inconsistent with her position in the lawsuit, where she sought to benefit from it. Judge Settle also rejected the argument that the omission was inadvertent, pointing to the timing and context. The plaintiff filed the lawsuit shortly after filing for bankruptcy and well before receiving a discharge, yet made no effort to update her disclosures.
- Notably, the judge distinguished this case from situations where plaintiffs proactively reopen bankruptcy proceedings to correct omissions. Here, the plaintiff took no such action until after the issue was raised by the defendant.
- The judge ultimately concluded that allowing the claim to proceed would permit the plaintiff to “play fast and loose with the courts,” particularly since the lawsuit targeted a creditor whose debt had already been discharged.
- While the plaintiff was allowed to amend her complaint to add new defendants, the claims against this defendant are out of the case for good.
