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Honest is the only policy in Bankruptcy – Half Truth is a Whole Lie

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Recently Bankruptcy Court ruled that a debtor could not pursue a personal injury claim when she failed to disclose that in her bankruptcy petition.

While in a Chapter 13 bankruptcy, a debtor got fired from her job at the hospital.   The hospital failed to provide adequate accommodations due to her disability.

This would have been a relatively straightforward American Disabilities Act (ADA) case.  However, the Debtor’s Chapter 13 Bankruptcy case was still open and she needed to inform the Court of this pending case.

In fact, the Debtor filed a modified Plan to reduce her Chapter 13 payments due to her reduced income.  What the Debtor did not disclose was the pending ADA case.   She eventually notified the Bankruptcy Court of her pending case but only after the hospital’s attorney brought that to her attention.

The hospital asked the Court to dismiss the case since the Debtor failure to disclose the case against the hospital and thus precluded her from pursuing the claim.    By not disclosing the claim in Bankruptcy Court, the Debtor could not pursue her ADA claim in State Court.  

The Court agreed and ruled that the Debtor clearly knew she had a claim and chose not to disclose.   When she filed the modified plan due to the loss of wages, she did not disclose the entire truth of the situation.  This indicated to the Court that there was “gamesmanship” going on.   The Bankruptcy Court does not tolerate less than truthful reporting and information.

I always remind my client’s truthfulness is absolutely necessary.    If an experienced bankruptcy attorney had pointed this out to their client (if the client disclosed the claim), this could have been avoided.

There are many implications and ramifications when you file for Bankruptcy.   You should examine the legal representation you choose and always, always be truthful.