Recovery In Class Action Lawsuit After Bankruptcy Closed

When you file a bankruptcy petition you are supposed to list all claims you have or may have against someone else. It doesn’t matter whether you believe your claim is likely to be successful or that you think you will ever collect any money; if you are aware of a potential, long-shot claim its best to list it. This week a new client told me a story about his bankruptcy that illustrates the importance of listing claims.

The client filed bankruptcy years ago- his case is now closed. Before he filed he filled out a form he received from a class action lawsuit. Many people receive these forms, and very few ever result in any recovery. His bankruptcy attorney suggested he not even list the claim because it had absolutely no value at the time he filed. A few months ago, without any warning, the client receives a letter from the class action attorneys saying that the defendants are interested in settling his claim for hundred of thousands of dollars. The class action attorneys found out he had previously filed bankruptcy after the class action case began. They will not finalized settlement of his claim until he resolves the rights of the bankruptcy trustee to the claim settlement.

If he has listed this class action on his bankruptcy schedules, even for a value of $1.00 or "value unknown", and put the claim under his schedule of exemptions the debtor would have been entitled to now keep the full value of the settlement according the majority of cases I found. However, because he failed to list the class action claim the entire claim is property of his bankruptcy estate after the case is reopened to report an additional asset and a potential recovery for his creditors. The lesson is: list all your potential assets and claims even if you are convinced they are worthless. If your claim appears worthless it is highly unlikely the bankruptcy will assert any rights in the claim and any windfall recovery after bankruptcy is yours to keep.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida