A few weeks ago I wrote an article to warn plaintiff attorneys to be careful to ensure that their clients who have previously filed bankruptcy to ensure that all claims they have against third parties are reported on the bankruptcy schedules. (Plaintiff’s Attorneys Beware: Your Client’s Bankruptcy Case is About to Sock You Right Between the Eyes) Well, . . . it just happened to a lady in Minnesota. (See Cover v J.C. Penny Corporation, Civ No 15-515, District of Minnesota).
The significant aspect of this case is that the debtor, April Cover, failed to report a discrimination claim on her bankruptcy schedules but she did verbally tell the bankruptcy trustee about the claim.
Not good enough says the Minnesota court. Actual verbal notice of a claim is not enough. Audio recordings of the court meeting between the trustee and the debtor disclose that the discrimination claim was reported to the trustee. There is no question that the debtor disclosed her claim, but without formally amending the bankruptcy schedules a debtor is legally barred from pursuing recovery in subsequent litigation.
The only locations where Cover disclosed her EEOC claim—the audio file of the creditors’ meeting and communications between the trustee and her counsel— are unavailable to creditors. Hence, despite her later, oral disclosure, Cover failed to adequately amend her Petition, and she also failed to keep the trustee apprised of the status of her EEOC charge, or the existence of this action. In the Court’s view, Cover’s positions are clearly inconsistent.”
Given the court’s opinion, actual written notice to the trustee is also probably insufficient to protect a debtor from judicial estoppel in subsequent litigation. It is not enough to send the trustee a letter to report claims not originally report or new claims occurring during the bankruptcy. The Minnesota court declares that only formal amendments to the bankruptcy schedules are sufficient to protect a debtor’s claim.
This issue becomes confusing because the trustee, when informed of the claim, probably determined that the claim was exempt from creditor or trustee claims under Minnesota law. However, even when a trustee is informed of the claim against a third party and elects not to claim it because of exemption laws, the claim must be formally reported on amended schedules to be preserved.
Plaintiff attorneys need to ask the following questions:
- Has their client filed bankruptcy in the past?
- Did the injury occur before, during or after the bankruptcy case?
- If a claim occurred before or during the bankruptcy were the bankruptcy schedules amended?
- Did the Chapter 7 trustee release his or her claim against the injury claim?
- Was the PACER computer system checked to see if the client has filed bankruptcy?
- Have you obtained a full copy of the bankruptcy schedules?
- Is it too late to amend the bankruptcy schedules to report a missing claim?
- Was the notice of the claim sufficiently detailed to put the trustee and creditors on notice?
I encourage Nebraska attorneys to contact this office if they have concerns about their client’s bankruptcy case.