This case provides a lesson that debtors still need to disclose all claims and potential claims in their schedules, or amend as soon as possible, AND creditors also need to be diligent.

In Ajaka v. BrooksAmerica Mortgage Corp., 2006 U.S. App. LEXIS 16303, No. 05-12105 (11th Cir. June 29, 2006), the issue was whether the debtor was judicially estopped from asserting Truth-in-Lending claims against the lender  where the claim was not  disclosed on his bankruptcy schedules.

Debtor obtained a loan secured by his home in 2000.  In 2002, he and his spouse filed a Chapter 13 petition and plan, which was subsequently confirmed.  It is undisputed that when the petition was filed and the plan confirmed, debtor was not aware of a potential TILA claim.  In early 2003, Debtor learned through non-bankruptcy counsel that he may have a TILA claim and that his schedules may have to be amended to reflect the claim.  His bankruptcy attorney was informed of the need to amend the schedules in March 2003 but bankruptcy counsel did not immediately act.

In April 2003, debtor (through non-bankruptcy counsel) filed a TILA action in District Court. Ten days later, the lender filed a proceeding in Bankruptcy Court seeking, inter alia, a declaratory judgment that debtor was judicially estopped from asserting the TILA claim.  (It is unclear how the Bankruptcy Court would have jurisdiction to do this).  As of the date of this action, no creditor had objected to the debtor’s confirmed plan within the 180 period set forth in 11 U.S.C. 1330(a).  On June 20, 2003, after the expiration of the 180 day period, debtors schedules were amended to include the TILA claims as an asset.

The District Court subsequently granted summary judgment to the lender based upon the
failure of the debtor to list the claim as an asset and the debtor appealed.

The Eleventh Circuit reversed.

Although not inflexible or exhaustive, we begin with a consideration of two primary factors in determining whether to apply judicial estoppel. "First, the allegedly inconsistent positions must have been taken under oath in a prior proceeding, and second, they must have been calculated to make a mockery of the judicial system." Id. (internal quotation marks omitted). "These factors are not exhaustive, however . . . ." Id.; Burnes, 291 F.3d at 1285-86 (holding that "courts must always give due consideration to all of the circumstances of a particular case when considering the applicability of this doctrine"). One "pertinent factor[is] . . . whether the present position is clearly inconsistent with the earlier position and whether the party successfully persuaded a court to accept the earlier position, so that judicial acceptance of the inconsistent position in a later proceeding creates the perception that either court was misled." Id.; see also New Hampshire, 532 U.S. at 751 ("A third consideration is whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.").

The court found that the debtor had failed to timely amend his schedules to reflect the TILA claim and, therefore, the first prong wa established. However, the second prong was not.

 As noted above, because of RFC’s adversary action in the bankruptcy court, filed in response to Ajaka’s rescission demand, all of Ajaka’s creditors, including the Defendants, were aware no later than April 21, 2003, that Ajaka had a colorable TILA claim. At that time, nothing would have prevented the Defendants from seeking revocation of the confirmation of Ajaka’s Chapter 13 reorganization plan pursuant to 11 U.S.C. § 1330(a), after which the Defendants could have sought conversion of  Ajaka’s bankruptcy to Chapter 7. See 11 U.S.C. § 1307(c). That is to say, although Ajaka did not himself amend his bankruptcy schedules to reflect the TILA claim until June 20, after the 180-day period under § 1330(a) had expired, all creditors were already aware of the TILA claim resulting directly from Ajaka’s attempts to sue the appropriate parties, and therefore could have challenged Ajaka’s failure to previously amend his schedules within the context of the ongoing bankruptcy proceeding.

Here, in contrast, Ajaka’s creditors did know, within the time period during which they could seek revocation of the confirmation of Ajaka’s Chapter 13 reorganization plan, about Ajaka’s potential TILA claim. Also, there is significant evidence in this case that Ajaka did not intend to conceal his TILA claim from his creditors. As noted above, Baird, acting on Ajaka’s behalf, informed Ajaka’s bankruptcy attorney on March 26, 2003, that the schedules should be amended to reflect the TILA claims; this was before any defendant in this case raised the prospect of judicial estoppel. The record in this case is silent as to why the bankruptcy attorney delayed in amending the schedules. Moreover, the bankruptcy attorney did amend Ajaka’s schedules to include the TILA claim, approximately three months after being advised to do so and less than two months after the lawsuit was filed in which it was first asserted. These facts when taken together, are sufficient in our view to conclude that there exists a question of material fact as to whether Ajaka had the motivation and intent to manipulate the judicial system under the circumstances presented here. Accordingly, the district court erred in granting summary judgment to the Defendants.