In chapter 7, a debtor with a claim that straddles the filing of a petition is judicially estopped from prosecuting only those that arose pre-bankruptcy, according to an opinion by District Judge Cecilia M. Altonaga of Miami.
After he filed a chapter 7 petition but before receiving a discharge, a man filed a lawsuit in district court against his former employer under the Fair Labor Standards Act (FLSA) for failure to pay overtime wages. Learning later about the plaintiff’s bankruptcy, the employer filed a motion to dismiss, contending the suit was barred by the principle of judicial estoppel because the debtor did not disclose the claims in his schedules.
The bankrupt plaintiff admitted that his pre-filing claims should be dismissed but contended he had no obligation to disclose claims arising after filing, because post-bankruptcy claims are not part of the chapter 7 estate.
The employer argued that the worker had an obligation to disclose post-filing claims because they were “rooted in the pre-bankruptcy past,” citing the Supreme Court’s Segal v. Rochelle opinion from 1966.
Judge Altonaga held that claims related to paychecks received after filing were not rooted in the pre-bankruptcy past, even though they were part of a continuing course of conduct by the employer. She therefore held that judicial estoppel did not apply because those claims were not part of the bankruptcy estate.
Decide for yourself whether Judge Altonaga’s opinion is correct, given the competing policies in play.