Do you have the right to sue or collect money from anyone? You may lose that right in Chapter 7 Bankruptcy, and even worse, if you are not careful.
Bankruptcy effects your right to sue others. It effects your right to collect money from others if the basis for that claim comes from something that happened before you file the bankruptcy case.
I have heard some people say, “Since I have not sued anyone yet, I don’t own it and I don’t have to list it in my bankruptcy.”
WRONG ANSWER. It is an asset. You do have to list it in your bankruptcy. Failing to do so can lead to disastrous results.
How a Chapter 7 Bankruptcy Can Effect Your Ability to Sue or Collect Money
If you have a right to collect money, whether it is from a loan you made to someone or a right to damages because someone harmed you in any way, that right to collect is called an “asset.” All assets belong to the bankruptcy estate unless it is protected by exemption laws or the Bankruptcy Trustee “abandons” those rights back to you. That means a Bankruptcy Trustee has the right to collect, settle, or sell your right to collect those funds. Then they can use the money to pay your creditors (after they and their attorneys get a “generous” piece of those funds of course.) That is true, whether or not you disclose your right to collect the money.
Can’t I Just Not Tell Them I Can Sue Someone or Collect Money Till After The Chapter 7 Bankruptcy?
Understand that you must disclose every right you have. You have no choice in the matter. Otherwise, you commit perjury. You can have your Bankruptcy discharge denied, (or your discharge revoked later) be fined, or even be sent to prison for lying. That includes lying on your Bankruptcy documents, to a Bankruptcy Trustee at your “Creditor’s Meeting,” or to the Bankruptcy Court. Bottom line, you must disclose every right you have in your bankruptcy.
If you lie, or just “forget” to list it as an asset in your bankruptcy, you no longer own it. It belongs to the bankruptcy estate forever.
There are numerous cases where Debtors later filed lawsuits years after their bankruptcy was discharged, only to have their legitimate claims thrown out of Court because they no longer owned the right to sue. It takes less than 5 minutes for an attorney to check to see if you filed a bankruptcy anywhere in the United States or even any U.S. Territory. Defense attorneys have wised up to this. They routinely check on the national “PACER” system to see if the Plaintiff filed a bankruptcy.
Not only can you have your lawsuit kicked out of court, the defense attorney will almost certainly notify the Bankruptcy Trustee and the United States Trustee’s office of this undisclosed asset. The United States Trustee’s office is a part of the Department of Justice. They are the people who enforce Federal laws. They often used “letter” names like FBI, ATF and others whose job is to attest and prosecute people who lie cheat and steal. You really do not want them looking at you for any reason.
Does that mean that you cannot keep the right? That depends on whether you have a protection for that right. That protection is called an “exemption.” Often, for example, a debtor often has the right to keep and protect the right to sue for a personal injury as long as it is disclosed in Bankruptcy. Other times, the right to collect money can be protected under the “wild card” exemption system. A large proportion of states have laws that let you choose, up to a set dollar amount, what you want to protect if the item does not already have a specific exemption.
When it comes to bankruptcy, you must list everything. That includes all your assets, including “intangible” things like rights to sue or collect money.
The bottom line is that when it comes to disclosing assets in bankruptcy, there is no “But” in “All.”
Do yourself a favor and disclose any rights to sue or collect money to your attorney when filing a bankruptcy, the risks are not worth it.