July 14, 2011 Articles

Litigation Claims in Consumer Bankruptcy Cases

Courts have split on Chapter 13 issues with decisions turning on plan-vesting provisions, the nature of the cause of action, and the debtor's chosen exemption scheme.

By Deborah B. Langehennig

Causes of action held by a debtor are property of the bankruptcy estate, whether they arise pre- or post-petition. Some confusion arises in Chapter 13 cases, as section 1303 of the Bankruptcy Code provides that Chapter 13 debtors retain the right to use estate property, and seems to suggest that the debtor is the proper party to pursue this pending litigation. However, courts have split on these issues with decisions turning on plan-vesting provisions, the nature of the cause of action, and the debtor’s chosen exemption scheme.

Debtors in bankruptcy must make full disclosure of all legal or equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. § 521(a)(1) and 541(a)(1). In a Chapter 13 case, property of the estate further includes property acquired after the commencement of the case. 11 U.S.C. § 1306(a)(1). The Bankruptcy Code imposes on debtors an affirmative duty of full disclosure, which “extends to ‘contingent assets’ such as causes of action pursued against another party.” In re Kane, 628 F.3d 631, 636, citing Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355 (3d Cir. 1996), and Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. Gen. Motors Corp., 337 F.3d, 314, 316 (3d Cir. 2003). For post-petition actions, “[a] debtor has an affirmative duty to supplement the list of assets with any claims arising during the pendency of the bankruptcy proceeding.” In re Barger, 279 B.R. 900, 906 (Bankr. N.D. Ga. 2002); Wolfork v. Tackett, 526 S.E.2d 436, 437–38 (Ga. Ct. App. 1999).

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