Knowing When to Walk Away
When handling an FDCPA claim, there are many initial questions to ask. Besides the definitional issue, it is valuable to look for prior bankruptcies. When a debtor fails to disclose the claim on the bankruptcy schedules, judicial estoppel prevents the debtor from later asserting it. In Jarrett v. LVNV Funding, the Western District of Kentucky Court made quick work dismissing the debtors' claim. The debtors had listed the debt on Schedule F but had not indicated a dispute. The bankruptcy court granted a discharge and two months later the debtors filed an FDCPA action in state court. The creditor properlyâand wiselyâremoved the action.
Judicial estoppel prevents a debtor from abusing the process through gamesmanship. Not listing the potential claim on Schedule B renders any assertion post-discharge contrary to that initial position relied upon by the bankruptcy court. To avoid the application of judicial estoppel, the debtor must show mistake or inadvertence in omitting the claim. In Jarrett, the debtor's assertion of mistake failed because the same attorney represented the debtor in the bankruptcy and the FDCPA action. While the opinion discusses that the debtor failed to schedule the debt as disputed on Schedule F, this should not create a new escape for debtors. The Sixth Circuit has held that it is important that the disclosure be made on Schedule Bânot on the SOFAâso that the trustee can know the value of the claim. Listing a debt as disputed on Schedule F provides no valuation or even an indication that there is an affirmative claim.
Judicial estoppel should be an arrow in every defense litigator's quiver, not just creditor attorneys. It can be difficult to have a state court enforce the doctrine and requires explaining bankruptcy schedules and the bankruptcy process (which may need the help of a bankruptcy attorney). Often the debtor will attempt to correct the non-disclosure by reopening the bankruptcy case, but allowing the disclosure of a claim after being caught to cure the non-disclosure only encourages gamesmanship. Also, there remains the possibility that the bankruptcy trustee will pick up the ball when it is returned to his court. But at that point you will be dealing with a detached plaintiff who will only look at the economics of the claim.