Failing to list the potential lawsuit as an asset altogether or failing to list it accurately can create even bigger problems. Applying the concept of judicial estoppel, the individual will likely be prevented from filing the lawsuit even after the bankruptcy case has closed if the lawsuit wasn’t listed a potential asset in the first place. Additionally, even if the lawsuit had been disclosed in the bankruptcy paperwork but was not listed properly, such as assigning a value of say $5,000 when the potential proceeds from the lawsuit could be much greater, the individual will likely be prevented (i.e. “estopped”) from seeking more than $5,000 damages in the lawsuit.
Chapter 7 bankruptcy is a two-way street. If done properly, the individual is given a “fresh start” through the entry of a discharge in exchange for the individual’s complete candor with regards to their financial picture, including the listing of all assets and expected values thereof. Failing to properly list a potential lawsuit as an asset can destroy the claim altogether, or alternatively, could interfere with the debtor’s right to receive a discharge by failing to disclose all assets. A prudent and experienced Chapter 7 bankruptcy lawyer will help you avoid these pitfalls and make sure the potential lawsuit is preserved for you or the bankruptcy estate.