If you have a potential legal claim or lawsuit when you file for Chapter 7 bankruptcy, you must list the claim in your bankruptcy paperwork. You must do so even if you have not yet filed the claim or started a lawsuit. Under bankruptcy law, potential or expected legal claims are part of your property, even if you won't receive the money for a long time or perhaps ever.
You Must List Potential Legal Claims on Your Bankruptcy Schedules
When you file bankruptcy, you must list all of your property and assets, along with their estimated values, on your bankruptcy schedules (the schedules are part of the papers that you file to start your bankruptcy case). (Learn more about the bankruptcy petition and schedules.) Listing your property and assets is an important part of Chapter 7 bankruptcy. In Chapter 7, the bankruptcy trustee can take your nonexempt property, sell it, and use the proceeds to repay your creditors. Whether or not your property is exempt, you must list it in your paperwork. (Learn what property is exempt and what that means in bankruptcy.)
If you have a lawsuit or a claim against another person or company that you anticipate receiving money from, the claim is considered to be an asset. This means you must list the lawsuit or claim in your bankruptcy schedules along with your other assets.
Common legal claims that you must list include:
- a lawsuit or expected settlement from a personal injury, discrimination, or malpractice case
- money from an insurance company that you expect to receive after making an insurance claim
- a lawsuit or expected claim against someone for a breach of a contract or agreement
- security deposits that a landlord owes you
- claims for unpaid commissions
Almost any lawsuit or claim where you expect to be paid money, is an asset that must be listed on your bankruptcy schedules.
You Must List Potential Claims and Lawsuits
You must list any active, pending lawsuits on your bankruptcy schedules.
But you must also list any claim or potential lawsuit, even if the case is not yet actually filed in court.
For example, if someone steals $100 from you tomorrow, you have an immediate potential claim against that person which you must list in your schedules, even though you haven’t yet taken any steps to file a lawsuit or make a claim on your insurance or elsewhere.
What If I Don’t List a Claim or Lawsuit in My Bankruptcy?
If you do not list pending or expected claims or lawsuits, a bankruptcy court can find that you have committed fraud on the court. This can lead the court to deny your discharge and/or order you to turn over to the trustee all proceeds that you get from the claim, even if they would have otherwise been exempt. And keep in mind, it's always a crime to purposely lie to a bankruptcy court.
In addition, failing to list the claim in your bankruptcy can affect the lawsuit or claim itself. The other party to the lawsuit can argue that the claims you failed to list in your bankruptcy should be unenforceable. The legal theory (called judicial estoppel) is that you can't act as if you don't have a claim while in bankruptcy and then later say that you do have a claim.
For example, if you have an employment discrimination lawsuit which you did not list on your bankruptcy schedules, the other party in your discrimination suit can request that the court throw your case out because of your failure to list it in the bankruptcy.
What Is the Value of My Lawsuit?
You must assign a value to all property that you list in your bankruptcy schedules, and this holds true for potential legal claims and lawsuits. Sometimes the value of a lawsuit is easy to determine. For example, if you have a claim for breach of a contract with damages amounting to $1,000, the value of the claim is $1,000. Other claims may be difficult to evaluate, such as those involving injury, pain, suffering, or mental anguish. In those cases, there may not be a definite value of the claim.
You are allowed to estimate the value of your legal claim as best you can. Your attorney should be able to give you some guidance as to the value of your claim.
You may be able to discount the value of your claim by its chance of success. A lawsuit with a low chance of success has a lower value. For example, an injury claim where damages may be worth a million dollars may have very little overall value if the chances of success are very small.
As with any asset with little or no value, if the chances of success or the overall value are low enough, you can exempt the lawsuit, or the trustee may voluntarily choose not to take it.