What happens if a personal injury plaintiff files bankruptcy but fails to disclose the personal injury claim in the bankruptcy case? The United States Supreme Court has now resolved a circuit split about how to analyze that question, and it could impact pending claims.
In Keathley v. Buddy Ayers Construction, Inc,. the Keathleys were involved in a motor vehicle accident with a Buddy Ayers employee in August 2021. They had an open Chapter 13 repayment plan but did not disclose the claim in the bankruptcy case after the accident occurred or when they filed suit. Buddy Ayers learned of the bankruptcy and moved for summary judgment in March 2023, arguing the Keathleys had taken inconsistent positions—first denying the claim in bankruptcy then later asserting it in the personal injury case. Buddy Ayers argued judicial estoppel barred the Keathleys from pursuing the personal injury claim because they had previously denied it existed in bankruptcy. The district court applied Fifth Circuit precedent and granted summary judgment, which the Fifth Circuit affirmed.
The Supreme Court reversed on narrow grounds, finding both lower courts used the wrong standard. Judicial estoppel is an equitable doctrine. “[W]hen a court conducts an equitable inquiry, it must act on a case-by-case basis, considering all relevant facts and circumstances.” Thus, the judgment was reversed and remanded to apply that test to the facts of this case. It gave no opinion as to what might happen when that test is applied.
This ruling changes the approach in circuits that previously applied narrower standards. District courts in those areas will now consider more factors, potentially making it harder to prevail on motions like Buddy Ayers filed. Keathley may also reduce some of the disincentives for bankrupt plaintiffs to conceal assets.
