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When filing a personal bankruptcy, list all potential claims

When a personal bankruptcy is filed, any property, including potential claims against others, becomes property of the bankruptcy estate. What this means is that any lawsuit the debtor would typically have the right to bring, must in most cases be brought by a federal official called a "trustee" instead.

As one Chattanooga resident learned recently, it is always important to list every asset in a personal bankruptcy petition, including potential legal claims against others. In this instance, the debtor had the ability to sue her former employer for an age discrimination lawsuit because of how she was fired. However, she did not list this claim in her petition that she filed with the bankruptcy court four days after her termination. The trustee was made aware of the potential claim but also did not inform the bankruptcy court about it.

The debtor received her discharge in January, 2010. She then sued her former company, but because a federal court found that since she failed to list the claim on her bankruptcy petition, she was prohibited from bringing the suit at all. On appeal, however, the court said that while the debtor was unable to bring the claim personally, the trustee could bring the suit since he did not abandon the claim during the bankruptcy. This meant he still had standing to bring the suit while the debtor did not. Whether the trustee will either pursue the claim or wind up returning any recovery to the debtor is unclear.

In this struggling economy, there are many reasons to file for bankruptcy, be they unemployment, medical expenses, credit card debt, debt relief or some combination of those. One of the most important things to remember when filing however is to always list everything owned as well as all potential lawsuits that one might have a right to bring.

Source: Thomson Reuters, "Trustee, not debtor, must bring age discrimination suit, 6th Circuit rules," Nov. 12, 2012

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Kenneth C. Rannick, P.C.
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