The Benefits of the Opposing Party Filing Bankruptcy

A party’s bankruptcy can have huge implications upon any civil litigation in which it is involved. I posted about it once before and anyone with claims involving Caesars Entertainment or recently Station Casinos can tell you about it.

If you need more persuasion that you should do the minimal discovery required to determine if the opposing party has filed bankruptcy, I offer Bolick v. Pasionek, 2:15-CV-177, 2015 U.S. Dist. LEXIS 50263 (D. Nev. 2015). Plaintiff filed a voluntary chapter 7 bankruptcy seeking to discharge more than $11,000,000 in debt. “In this petition, plaintiff did not include his claims against defendant as part of his assets. However, plaintiff did include the defendant’s counterclaims as liabilities.” Oops.

Defendant moved to dismiss for the same reasons I used in a prior case. Plaintiff’s opposition predictably requested the change to “reopen his bankruptcy case and amend his schedules to include his claims against defendant as an asset.” For those uninitiated in bankruptcy, the court explained mechanically how a bankruptcy worked. It then dismissed the complaint. Amending “one’s schedules after-the-fact does not excuse earlier failures to disclose. After-the-fact amendments still burden courts by disrupting the orderly administration of bankruptcy estates. The offending litigants, not courts, should be made to bear the consequence of non-disclosure. It is the court system, after all, that judicial estoppel aims to protect.” Citations and quotations omitted. “Plaintiff’s argument that he accidentally shielded a potentially lucrative asset from his creditors (of which there were many) during the course of his bankruptcy cannot stand.”

If your client has been sued, during discovery it is likely worthwhile to evaluate whether the opposing party filed bankruptcy.