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Debtor's Failure To Disclose Lawsuit To Bankruptcy Court Results In Severe Penalty

Posted By admin || 11-Sep-2010

Debtor's Failure To Disclose Lawsuit Results In Severe PenaltyAfter failing to disclose a pending pregnancy discrimination lawsuit to the bankruptcy court, debtor Hardee-Guerra was barred from pursuing her claims for compensatory damages in the lawsuit.  Using the doctrine of "judicial estoppel" which disallows a party from taking a position in a case which is contrary to a position they took earlier, the court is disallowing the debtor from seeking compensatory damages while still allowing her to pursue declaratory and injunctive relief.  In other words, since the debtor behaved as if she didn't have a potential asset in the pending lawsuit during bankruptcy, she will not be allowed to receive compensation from the lawsuit. However, the court will still allow the lawsuit to continue for the purposes of determining if there was in fact pregnancy discrimination and punishing the company if in fact they are found to have practiced discrimination against the plaintiff.

The Senior U.S. District Judge Jan E. DuBois found that by hiding her lawsuit during her Chapter 13 bankruptcy, the debtor had potentially defrauded the creditors out of more than $140,000 which was discharged in bankruptcy.

"Here, the potential miscarriage of justice was inflicted upon Hardee-Guerra's unsecured creditors, who did not receive the money they might have been entitled to had Hardee-Guerra informed them of her pending discrimination suit," DuBois wrote.

As a result, DuBois found that the plaintiff must be barred from pursuing compensatory damages in order to protect "the integrity of both the bankruptcy and judicial processes."

For her part, the debtor claimed that she did disclose the pregnancy discrimination case to the bankruptcy court because she believed that they were two separate things.  However, the judge found that since the debtor had knowledge of the lawsuit, the incentive to hide it and in fact failed to disclose it over the course of her Chapter 13 bankruptcy that was enough to constitute bad faith.  And while judicial estoppel has been used to completely dismiss cases in the past, the judge said that a complete dismissal of the discrimination lawsuit would be too extreme.

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