We provide advice and planning, draft petitions. and represent debtors in connection with Chapter 7 bankruptcies.
WHEN BORROWERS FILE BANKRUPTCY AND FAIL TO LIST A POTENTIAL LAWSUIT AS AN ASSET, THEY CANNOT SUE THE CREDITOR
The Hamiltons bought a home in January 2007. They defaulted on the loan in September 2007. They then entered into a forbearance agreement with the lender, Select Portfolio Servicing, Inc. (SPS). SPS agreed to the agreement. Later SPS notified the Hamiltons the loan was transferred to Greenwich Investors XXVI, LLC. In March 2008, Greenwich contacted the Hamiltons and the Hamiltons informed Greenwich about the forbearance agreement. Greenwich refused to honor the agreement and demanded the total amount of the arrearages on the mortgage. The Husband Henry Hamilton filed for bankruptcy but failed to list any claim against Greenwich in the bankruptcy schedules. The bankruptcy plan called for monthly payments to Greenwich Investors. The Hamiltons defaulted on the plan. The Hamiltons then sued Greenwich alleging breach of contract following the foreclosure and sale of the home.
Greenwich filed a demurrer which the trial court granted finding the failure of the Hamiltons to list the existence of their claim in the bankruptcy proceeding barred the action
The 2nd District Courts of Appeal said . . .
Affirmed. One seeking benefits under the bankruptcy law must satisfy a companion duty to schedule all his interests and property rights for the benefit of creditors. Failure to disclose any litigation that might arise in a non-bankruptcy context triggers application of the doctrine of equitable estoppel operating against a subsequent attempt to prosecute the actions. Since Henry failed to list any claim against Greenwich, one of his listed principal creditors, even in answer to an express question about counterclaims and setoffs, his lawsuit is not allowed. (Hamilton v. Greeenwich Investors, XXVI, LLC, Cal. Cts. of Appeal, 2nd Dist. No. B224896, 6-1-11)
List all potential lawsuits you may have in your bankruptcy schedule of assets whether you intend to sue at that time or not. That way you preserve the right. I had such a case once, where we sued the second holder of the deed of trust and unbeknownst to me the plaintiff our client had previously filed bankruptcy and not listed the potential lawsuit and the defense attorney moved for dismissal. He was right. HOWEVER, I informed the attorney that I would ask the court to dismiss without prejudice and then request the Bankruptcy be reopened to list the potential claim so I could refilled. This was not necessary because the defense settled shortly thereafter rather than go through that hassle I presume. In this case the major and important difference is the Hamiltons appear to have EXPRESSLY DENIED ANY RIGHTS TO COUNTERCLAIMS AND SETOFFS. Be careful when you file bankruptcy to list all potential lawsuits you may have against others.
THE INFORMATION HEREIN IS NOT LEGAL ADVICE. AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.