Trustee Blog

Collateral Estoppel

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As we discussed in the last blog post for Trustee John Pringle on November 6, 2013, Trustee Pringle asks each of the debtors “Do you have any claims pending against anyone including a claim for personal injury?”. It is important that your client list all potential claims in the bankruptcy or the Trustee may assert an interest the proceeds.

Another problem occurs when a client does not list the claim. or lawsuit or potential lawsuit. When the defendant in the underlying action finds out that the Plaintiff filed a bankruptcy petition and did not tell the Bankruptcy Court and Bankruptcy Trustee about the lawsuit, the Defendant will assert collateral estoppel in the State Court litigation and the State Court action may be dismissed. So by concealing this lawsuit, the debtor will shoot himself in the foot as the State Court will not allow the Debtor to lie in the Bankruptcy Court action and then try to gain in the State Court action.

Practice Pointer:

Make sure that your client has fully disclosed all claims, lawsuit, potential claims and potential lawsuits. If he does not, the omissions will come back to haunt him by the Bankruptcy Court, the Bankruptcy Trustee, The State Court and the Defendants in the underlying action.

It is important for the above to list the claims or potential claims at the very least because that provides notice to the court, the trustee and all creditors. Even if you do not know the estimated value of the lawsuit, list it anyway as that can be amended later. The important thing is it is listed in the original petition for all the world to see.

Your job is to protect your client and his claim and potential claim in the bankruptcy case and any future litigation. The claim may or may not be something that can be exempted, but it must be listed.

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