The Journal of The DuPage County Bar Association

Back Issues > Vol. 23 (2010-11)

Judicial Estoppel: How Non-Disclosure of a Cause of Action in Bankruptcy
May Spell Doom For A Subsequent Civil Action
By Brian M. Dougherty

Over the past few years, the U.S. has faced a dramatic rise in mortgage foreclosures.  With this rise also came an increase in bankruptcy filings under the U.S. Bankruptcy Code (“Code”).[1]  For homeowners with a mortgage, in particular, Chapter 13 of the Code has had the salutary goal of allowing a debtor to pay off mortgage arrearages over time while making current payments on the mortgage.[2]  Once a Chapter 13 bankruptcy petition is filed, all assets of the debtor become property of the bankruptcy estate.[3]  One type of asset is a cause of action.[4]  However, failure to disclose a cause of action in a bankruptcy case can have severe consequences in the future.

Let’s say homeowner is fired from his job.  He thinks he was fired because of his race and files a charge of discrimination with the EEOC.  Homeowner is delinquent on his mortgage and files for Chapter 13 protection.  He fails to disclose his EEOC charge in his bankruptcy case.  Homeowner later files a race discrimination lawsuit against his employer.  At his deposition, employer’s attorney shows homeowner his bankruptcy schedules and statement of financial affairs, which never disclosed his EEOC charge and were never amended to reflect his race discrimination lawsuit. 

Employer files a motion for summary judgment arguing that “judicial estoppel” bars this otherwise meritorious lawsuit because homeowner affirmed, under oath in his bankruptcy case, that he had no claim against his employer, and yet filed a race discrimination action.  Guess what?  Employer has a strong chance at winning this argument, because courts take seriously the issue of non-disclosure of assets in a bankruptcy case.  This article will give a basic overview of Chapter 13 bankruptcies, how Illinois and federal courts define judicial estoppel, how judicial estoppel has been applied to bankruptcy proceedings, and how attorneys should address this issue in their practice.

Chapter 13 Overview. In a bankruptcy case, when the petition is filed, all assets of the debtor generally become property of the bankruptcy estate and under the control of the bankruptcy court.[5]  Additionally, Section 541(a)(7) of the Code provides that after-acquired property (viz. property acquired after the bankruptcy commences) also becomes property of the estate.[6]  In a Chapter 13 case, after acquired property is specifically included as property of the estate, but is only included before the case is closed, dismissed or converted to a case under Chapters 7, 11 or 12.[7] 

When a bankruptcy case is filed, a debtor must also file his bankruptcy schedules (under oath) that disclose certain entities, assets and claims.  The required schedules are provided for in Official Forms which are set forth in the Federal Rules of Bankruptcy Procedure.[8]  Form 6 – Schedules - of the Official Forms contains important disclosure requirements.  For instance, Schedule B, question 21 requires the disclosure of contingent and unliquidated claims.  As we will see, this has been construed to mean lawsuits.  Official Form 7 – Statement of Financial Affairs – also must be completed (under oath) by the debtor.  Question 4 asks about suits and administrative proceedings to which the debtor is a party within one year preceding the filing of the bankruptcy case.  Thus, an EEOC proceeding would fall within this category even if the lawsuit is not filed until after the commencement of the bankruptcy case.  Question 8 asks about casualty losses and theft within one year preceding the bankruptcy case or since the commencement of the case.  Thus, if one’s vehicle was repossessed and sold after the case commenced, and the owner sues for conversion, this must be disclosed.

The debtor must also submit a Chapter 13 plan.[9]  The plan places the debtor’s future income within the supervision and control of the bankruptcy trustee in order to effectuate the plan’s terms.[10]  The trustee’s duties include advising the debtor (including making sure the debtor’s schedules and statement of financial affairs are accurate) and to ensure timely payments under the plan.[11]  The purpose of the plan is to pay creditors over a prescribed period of time.  The plan must also comport with certain statutory requirements.  After the plan is filed there is a confirmation hearing after notice of the plan was provided to interested parties (viz. creditors).[12]  The plan would be confirmed if certain requirements were met.[13]  Thus, the bankruptcy court is has “an independent duty to scrutinize the proposed plan.”[14]  Unsecured creditors could object to the plan if their claims are not properly provided for.[15]   

The debtor’s debts under the plan would be discharged after payments are completed.[16]  The bankruptcy court, under certain situations, can grant a discharge if payments are not completed.[17]  The trustee or a creditor could move to dismiss the case if the debtor fails to file a plan, fails to make plan payments, or there is a material default under the plan.[18]

Judicial Estoppel at the State and Federal Levels. Judicial estoppel has its roots in Illinois as far back as 1930 when the appellate court acknowledged it in (coincidentally) a case that involved a prior bankruptcy proceeding.[19]  Generally, judicial estoppel provides that a party who assumes a particular position in a legal proceeding is estopped from assuming a contrary position in a subsequent legal proceeding.[20]  It is designed to promote the truth and to protect the integrity of the court system by preventing litigants from deliberately shifting positions to suit the exigencies of the moment.[21]  In Illinois, judicial estoppel has five elements: 1) the two positions must be taken by the same party; 2) the positions must be taken in judicial proceedings; 3) the positions must be given under oath; 4) the party must have successfully maintained the first position and received some benefit; and 5) the two positions must be totally inconsistent.[22]  Judicial estoppel’s main focus is on the relationship between the litigant against who estoppel is being asserted and the judicial system.[23]  Not to be confused with equitable estoppel, judicial estoppel does not require the party asserting estoppel to show that it was misled by the other party’s words or conduct.[24]  Judicial estoppel does not prevent pleading inconsistent theories in a lawsuit.  

At the federal level, judicial estoppel is quite similar.  The United States Supreme Court, in New Hampshire v. Maine,[25] has fashioned a more condensed test for judicial estoppel: 1) whether the party’s later position is clearly inconsistent with its earlier position; 2) whether the party has succeeded in persuading a court to accept the earlier position so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or second court was misled; and 3) whether the party seeking to assert the inconsistent position would derive an unfair advantage or impose an unfair detriment if not estopped.  The same rationale underlying Illinois cases also runs through the United States Supreme Court’s reasoning: judicial estoppels prevents a party from prevailing on one phase of a case and later relying on a contradictory argument to prevail in another phase of a case.[26]  The interest protected is that of the judiciary, and not the parties.[27]  As seen at both levels, it does not matter that the party asserting estoppel has obvious liability to the other.  Judicial estoppel diverts the issue from the merits of the case, allows the asserting party to act as an officer of the court (in the truest sense of the phrase), and alerts the court to the opposing party’s attempt to dupe the court.

Since judicial estoppel exists at both levels, there may be a choice of law issue.  If a lawsuit is filed in Illinois, but the prior judicial proceeding arose in Texas, which forum’s law applies?  Since the prior judicial proceeding is a bankruptcy case, the better reasoned argument is that federal judicial estoppel applies.[28]  Additionally, federal judicial estoppel has fewer elements than Illinois judicial estoppel, so there are fewer issues to worry about. 

Application to Bankruptcy Cases. Since a litigant might use a bankruptcy proceeding as a predicate for judicial estoppel, it would not be uncommon for judicial estoppel to arise at the state level.  In an Illinois case, the appellate court affirmed the trial court’s application of judicial estoppel where the plaintiff maintained that he was entitled to a share of partnership profits.[29]  However, plaintiff failed to disclose that asset in his prior bankruptcy case.  In his bankruptcy schedules, plaintiff failed to disclose any contingent and unliquidated claims, and failed to disclose any partnership interest in the prior years.  The court found that plaintiff was able to avoid his creditors as a result of the non-disclosure.[30]  Thus, plaintiff took inconsistent positions in separate legal proceedings, under oath and to his benefit.[31]  While this case appeared to involve a Chapter 7 bankruptcy, its analysis would apply equally to judicial estoppel in Chapter 13 cases.  The court did not discuss whether Illinois or federal judicial estoppel applied. 

In Cannon-Stokes v. Potter,[32] the Seventh Circuit applied judicial estoppel to a debtor who failed to disclose her prior administrative proceeding in her pending Chapter 7 bankruptcy case.  The court of appeals, relying on the Supreme Court’s New Hampshire opinion, found that judicial estoppel applied to bar the debtor’s civil suit which was filed after her bankruptcy proceeding was over.  The court noted that six other courts of appeal have held that a debtor in bankruptcy who denied owning an asset cannot realize on that concealed asset after the bankruptcy was over.  Plaintiff also argued that her bankruptcy attorney told her to omit her claim on her schedules.  The court was not persuaded, stating that a client is bound by her attorney’s (bad) advice even if the client relied on the advice in good faith.[33]

In an unpublished decision, the Seventh Circuit extended judicial estoppel to a Chapter 13 bankruptcy.  There, plaintiff filed a charge of discrimination and three years later filed for Chapter 13 protection.  Plaintiff did not disclose her then-pending lawsuit against her employer.  The employer moved for summary judgment on judicial estoppel grounds and the motion was granted.  The court of appeals affirmed.[34]  The court held that there was no distinction between Chapter 7 and 13 bankruptcies, since both chapters require the full disclosure of assets.[35]  The court also disregarded the plaintiff’s  argument that she did not intentionally fail to disclose the lawsuit, stating that her subjective intent was irrelevant.[36]

A district court in the Northern District of Illinois found that plaintiff was barred by judicial estoppel.  There, the court found that plaintiff, who had filed for Chapter 13 bankruptcy, failed to amend line 21 of Schedule B of his bankruptcy schedules to disclose his claims against others.[37]  The court also found that plaintiff’s response to line 25 of his amended Schedule B did not disclose that he had a conversion or theft claim against defendants.[38]  The court also rejected plaintiff’s argument that he was not required to disclose the lawsuit since it was not yet filed, because that argument was undermined by the fact that he filed suit against defendants just weeks after the bankruptcy case was dismissed.[39]   

In another district court case that was similar to Cannon-Stokes, the plaintiff actually amended his bankruptcy schedules after being caught failing to disclose a contingent and unliquidated claim.[40]  However, that did not help plaintiff, as the court granted summary judgment to defendant.  Reopening a bankruptcy case to disclose an asset does not demonstrate inadvertence or mistake, inasmuch as it shows that one has been caught and better make amends.[41]  Thus, allowing a reopening of a bankruptcy case to amend a disclosure would only serve to foster litigants to conceal an asset and hope not getting caught.  If they are caught and could remedy the situation by amending their schedules, there is really no incentive to be truthful in the first instance.[42]  

Other federal courts have been faced with situations where a debtor has failed to list causes of action on his bankruptcy schedules and the outcomes have been the same.[43]  Thus, courts have not shown much gratitude toward parties who fail to disclose assets in a bankruptcy case no matter what parties’ excuses or their intent.

The application of judicial estoppel in a Chapter 13 bankruptcy does not require that the court confirm the Chapter 13 plan or enter an order discharging the debtor’s debts.  Under New Hampshire, there is no requirement that a bankruptcy court enter an order or final decision before the doctrine is applied.  

The failure to disclose a cause of action in a Chapter 13 case is devastating to creditors.  The creditors rely on the schedules and statement of financial affairs when reviewing the debtor’s plan.[44]  If the debtor paints a bleak picture of his finances, creditors may go along with the plan and fail to negotiate higher settlement for their claims.[45]  A valuable cause of action also affects the creditors because, for instance, a debtor may ask the court for permission to prosecute the claim outside of the bankruptcy court and the court could grant such a request.[46]  The creditors would stand to gain from that lawsuit if there is a settlement or judgment.  In a Chapter 13 case, this is why courts are apt to apply judicial estoppel – it prevents the bankruptcy court from properly administering the Chapter 13 plan and destroys the integrity of the equitable distribution of assets.[47]

For instance, a debtor could file for bankruptcy protection, omit assets on his schedules, have his case dismissed, and then proceed with a cause of action that should have been disclosed.  A debtor would then argue that he received no benefit because his case was dismissed.  Courts have systematically rejected such an approach.[48]  

How to Avoid the Problem. Judicial estoppel is a rarely used doctrine, but given the rise in bankruptcy filings, “an ounce of prevention is worth a pound of cure.”  Based on the cited authorities, even an inadvertent mistake in the bankruptcy forum may prove costly.  Inexperienced laypersons should not be filing pro se bankruptcy petitions, let alone completing their bankruptcy schedules.  Since a party’s intent is irrelevant when applying judicial estoppel, liability is virtually strict.   

Plaintiffs’ attorneys should ask their clients about recent bankruptcy filings and explain why that information is necessary for litigation purposes.  Clients may feel uncomfortable or embarrassed in disclosing that information, but the ramifications could be severe.  Clients should be advised to keep their attorney apprised of any bankruptcy filings that arise during the course of the representation because it could impact their case.  By doing this, the practitioner can protect himself and it at least memorializes that the advice was given.  If a client does come to you for bankruptcy advice and you do not regularly practice in that area, referral to a bankruptcy attorney should be automatic.  

Aside from trying to avoid the problem, defense attorneys have a weapon at their disposal.  It also does not hurt to ask in discovery whether the plaintiff has filed for bankruptcy within the past seven years.  The question is indeed relevant, as what items might be disclosed are unknown.  Electronic research databases also include bankruptcy filings as part of their public records.  One could also research an individual on the various bankruptcy courts’ websites.  This will disclose any bankruptcy petitions, the schedules and statement of financial affairs of which can be printed.  A little research does not hurt, because based on the authorities, the judicial estoppel weapon is close to indefensible in this area of the law.

[1] In 2007, non-business bankruptcy filings totaled 822,590.  By 2009, such filings had increased to 1,412,838. See

[2]  11 U.S.C. § 1322.

[3]  11 U.S.C. §541.

[4]  11 U.S.C. § 541.

[5] 11 U.S.C. § 541(a)

[6] 11 U.S.C. § 541(a)(7).

[7] 11 U.S.C. § 1306(a)(1).

[8]  These forms are also obtainable from the bankruptcy court’s website.  See, e.g.,  

[9] 11 U.S.C. § 1321.  Bankruptcy courts in the Northern District of Illinois use a “Model Chapter 13 Plan.”

[10] 11 U.S.C. § 1322(a)(1).

[11] 11 U.S.C. § 1302(b)(4), (5).

[12] 11 U.S.C. § 1324.

[13] 11 U.S.C. § 1325.

[14] In re Martin, 17 B.R. 924 (N.D. Ill. 1982).

[15] 11 U.S.C. § 1325(b)(1).

[16] 11 U.S.C. § 1328(a).

[17] 11 U.S.C. § 1328(b).

[18] 11 U.S.C. §§ 1307(c)(3), (4) and (6).

[19] Rifkin & Hart, Inc. v. S. Buchsbaum & Co., 257 Ill. 473 (1st Dist. 1930).

[20] Bidani v. Lewis, 285 Ill. App. 3d 545, 675 N.E.2d 647 (1st Dist. 1996).

[21] Bidani v. Lewis, 285 Ill. App. 3d 545, 675 N.E.2d 647 (1st Dist. 1996).

[22] Bidani v. Lewis, 285 Ill. App. 3d 545, 675 N.E.2d 647 (1st Dist. 1996).

[23] Bidani v. Lewis, 285 Ill. App. 3d 545, 675 N.E.2d 647 (1st Dist. 1996).

[24] Cf. County of Kendall v. Rosenwinkel, 353 Ill. App. 3d 529, 818 N.E.2d 425 (2nd Dist. 2004) (elements of equitable estoppel).

[25] New Hampshire v. Maine, 532 U.S. 742, 121 S.Ct. 1808 (2001).

[26] New Hampshire v. Maine, 532 U.S. 742, 121 S.Ct. 1808 (2001).

[27] New Hampshire v. Maine, 532 U.S. 742, 121 S.Ct. 1808 (2001).

[28] See Heiser v. Woodruff, 327 U.S. 726, 732, 83 S.Ct. 1028 (1946); Taylor v. Sturgell, 553 U.S. 880, 128 S.Ct. 2161, 2171 (2008) (“The preclusive effect of a federal-court judgment is determined by federal law”); accord Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1284 (11th Cir. 2002) (Applying federal judicial estoppel when prior case was in bankruptcy court); Gann v. William Timblin Transit, Inc., 522 F.Supp.2d 1021, 1027 (N.D. Ill. 2007) (“Where a dispute exists over whether a lawsuit is precluded by a previous lawsuit filed in federal court, the federal rules of claim preclusion apply”).   

[29] Dailey v. Smith, 292 Ill. App. 3d 22, 684 N.E.2d 991 (1st Dist. 1997).

[30] Dailey v. Smith, 292 Ill. App. 3d 22, 684 N.E.2d 991 (1st Dist. 1997).

[31] Dailey v. Smith, 292 Ill. App. 3d 22, 684 N.E.2d 991 (1st Dist. 1997).

[32] Cannon-Stokes v. Potter, 453 F.3d 446 (7th Cir. 2006).

[33]  Cannon-Stokes v. Potter, 453 F.3d 446 (7th Cir. 2006).

[34] Becker v. Verizon North, Inc., 2007 WL 1224039 (7th Cir. 2007).  See also Leon v. Comcar Industries, Inc., 321 F.3d 1289 (11th Cir. 2003); Jethroe v. Omnova Solutions, Inc., 412 F.3d 598 (5th Cir. 2005) (Both Leon and Jethroe involved Chapter 13 bankruptcies).

[35] Becker v. Verizon North, Inc., 2007 WL 1224039 (7th Cir. 2007).

[36] Becker v. Verizon North, Inc., 2007 WL 1224039 (7th Cir. 2007).

[37] Thompson v. Bryant, 2008 WL 1924954 (N.D. Ill. 2008).

[38] Thompson v. Bryant, 2008 WL 1924954 (N.D. Ill. 2008).

[39] Thompson v. Bryant, 2008 WL 1924954 (N.D. Ill. 2008).

[40] Bland v. Rahar, 2008 WL 109388 (C.D. Ill. 2008).

[41] Bland v. Rahar, 2008 WL 109388 (C.D. Ill. 2008).

[42]  Bland v. Rahar, 2008 WL 109388 (C.D. Ill. 2008); Eastman v. Union Pacific R. Co., 493 F.3d 1151 (10th Cir. 2007).

[43] Hamilton v. State Farm Fire & Casualty Co., 270 F.3d 778 (9th Cir. 2001); Jethroe v. Omnova Solutions, Inc., 412 F.3d 598 (5th Cir. 2005) (Lawsuit pending while bankruptcy case was still open); Lott v. Sally Beauty Company, Inc., 2002 WL 533651 (M.D. Fla. 2002) (Irreconcilable to deny being a party to an administrative proceeding while having filed an EEOC charge one month earlier); Chandler v. Samford University, 35 F.Supp.2d 861 (M.D. Ala. 1999) (collecting cases).

[44] In re Hoffman, 99 B.R. 929 (N.D. Iowa 1989).

[45] Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. General Motors Corporation, 337 F.3d 314 (3rd Cir. 2003).

[46]  Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. General Motors Corporation, 337 F.3d 314 (3rd Cir. 2003).

[47] Rosenshein v. Kleban, 918 F.Supp. 98 (S.D.N.Y. 1996).

[48] Rosenshein v. Kleban, 918 F.Supp. 98 (S.D.N.Y. 1996); In re Hoffman, 99 B.R. 929 (N.D. Iowa 1989); Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. General Motors Corporation, 337 F.3d 314 (3rd Cir. 2003).

Brian M. Dougherty is an associate at the law firm Goldstine, Skrodzki, Russian, Nemec and Hoff, Ltd. and is a member of the firm’s Litigation Group. His practice in concentrated in commercial landlord-tenant matters, business torts, and in representing employees and employers in employment disputes arising under state and federal law.

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