When people think about listing assets in bankruptcy, they usually think about their house, cars, bank accounts, retirement accounts, and other tangible property. One type of asset, however, is often overlooked: a legal claim against someone else. That might include a personal injury claim from a car accident, a medical malpractice claim, an employment-related claim, an insurance claim, or another potential lawsuit, even if a lawsuit has not been filed yet. The United States Supreme Court’s recent decision in Keathley v. Buddy Ayers Construction, Inc., 608 U.S. ___ (2026) decided June 11, 2026, is an important reminder of why bankruptcy clients should disclose these claims to their bankruptcy attorneys.
Although Keathley arose from a Chapter 13 case, the underlying disclosure principle is important in both Chapter 7 and Chapter 13 bankruptcies. Under 11 U.S.C. § 541, the bankruptcy estate in a Chapter 7 case generally includes the debtor’s legal and equitable interests in property existing when the bankruptcy case begins. However, under 11 U.S.C. § 1306(a)(1), the bankruptcy estate in a Chapter 13 case generally includes property acquired by the debtor after the bankruptcy case begins and before the case is closed, dismissed, or converted. That specifically includes claims that arise during the Chapter 13 case.
What Happened in Keathley v. Buddy Ayers Construction?
Thomas Keathley and his wife filed Chapter 13 bankruptcy in 2019. In 2021, while their bankruptcy case was still pending, Keathley was involved in a motor vehicle accident involving an employee of Buddy Ayers Construction. Keathley hired a personal injury attorney and told his bankruptcy attorney that he intended to pursue a claim. However, Keathley never amended his petition to disclose his potential personal injury to the bankruptcy court. Keathley later filed a lawsuit arising from the accident without first updating his bankruptcy schedules.
The defendant argued that Keathley should be prevented from pursuing his personal injury lawsuit because he had failed to disclose the claim during his bankruptcy case. The lower courts agreed, applying the doctrine of judicial estoppel. The Supreme Court, however, vacated that decision. The Court held that, when determining whether an omission was an inadvertent mistake for purposes of judicial estoppel, courts must consider the totality of the circumstances rather than applying a rigid rule based primarily on whether the debtor knew the underlying facts or had a potential motive to conceal the claim.
Importantly, it should be noted, the Supreme Court did not say that debtors can leave claims off their bankruptcy schedules. On the contrary, the Court emphasized that bankruptcy debtors must disclose their assets, in particular claims against third parties, even when those claims have not been initiated into a lawsuit.
A Potential Lawsuit Is Still an Asset
One of the most important lessons from Keathley is that a legal claim does not have to be a filed lawsuit to be relevant to a bankruptcy case. Debtors are required to disclose in their bankruptcy schedules any claims against third parties whether or not a lawsuit has been filed or a demand for payment has been made. A debtor also signs the schedules under penalty of perjury.
For example, a bankruptcy client may have:
- Been injured in a motor vehicle accident;
- Been injured in a slip-and-fall;
- Received medical treatment that may have involved malpractice;
- A claim against a current or former employer;
- Submitted or planned to submit an insurance claim;
- Been injured by a defective product;
- Already filed a lawsuit based on such a claim; or
- Experienced an event that may give rise to a legal claim, even though you may not be sure whether there is a valid case yet.
What Can Happen If a Claim Is Not Disclosed?
One potential consequence of not disclosing a potential legal claim or existing lawsuit in a bankruptcy case is judicial estoppel. Judicial estoppel is an equitable doctrine that can prevent a party from taking inconsistent positions in different legal proceedings. Some courts have applied the doctrine when a bankruptcy debtor fails to disclose a legal claim and later attempts to pursue that claim outside the bankruptcy case. The Supreme Court in Keathley did not hold that judicial estoppel can never apply. Instead, assuming that the doctrine can apply in the bankruptcy context, the Court held that courts must examine the totality of the circumstances when deciding whether an omission was inadvertent or a mistake. That distinction is important. Keathley may provide protection in some circumstances where a claim was accidentally omitted. But it should not be treated as a safety net for failing to disclose assets. The best practice remains to disclose the claim in the first place.
A failure to include a claim could lead to the dismissal of the action in state or federal court. If a claim is not disclosed before a bankruptcy petition is filed, the debtor may amend their schedules to disclose the claim. However, if the bankruptcy case was already closed, the debtor will have to file an application to reopen their case, and then if granted, amend the petition to disclose the claim. It should also be noted, for personal injury-related claims there are bankruptcy exemptions which can enable a debtor to protect at least some and sometimes all the net proceeds of their personal injury claim.
“But I Don’t Know What My Claim Is Worth.”
Personal injury and medical malpractice claims can be difficult to value, particularly early in the process. The full extent of an injury may not yet be known. Medical treatment may be ongoing, and liability may be disputed. Insurance coverage may also be uncertain. Those uncertainties do not eliminate the requirement to disclose the potential claim. Bankruptcy rules demand assets such as a potential legal claim to be identified even when their ultimate value is uncertain. Your bankruptcy attorney can determine how the claim should be described and valued for purposes of the bankruptcy schedules. It is much better to disclose a potential claim and later determine that it has little or no value than to fail to disclose a valuable claim altogether.
When in Doubt, Disclose
When preparing for bankruptcy, do not limit your discussion with your attorney to traditional assets such as bank accounts, vehicles, real estate, bank accounts, etc. You should disclose to your attorney any claims that could potentially result in someone owing you money. That includes accidents, injuries, medical treatment, possible malpractice, insurance disputes, employment disputes, lawsuits, settlements, and other potential claims. If you already have a personal injury or medical malpractice attorney, tell your bankruptcy attorney about that representation as well. Likewise, your bankruptcy attorney and personal injury attorney may need to communicate with each other to make sure that the bankruptcy case and the underlying claim are handled properly.
Legal Claims are Assets in a Bankruptcy Case
Keathley v. Buddy Ayers Construction, Inc. is an important reminder that legal claims are assets that need to be taken seriously in bankruptcy. The case arose from a Chapter 13 bankruptcy, but the disclosure principle discussed in the case is important in both Chapter 7 and Chapter 13. The Supreme Court emphasized that bankruptcy debtors must disclose their assets, including claims against third parties, even when those claims have not yet become lawsuits. The Court also held that when a court is evaluating an alleged inadvertent omission, they must consider the totality of the circumstances rather than automatically treating knowledge of the underlying facts or a potential financial benefit as conclusive evidence of intentional concealment. For bankruptcy clients, however, the safest lesson is straightforward:
If you have been injured in an accident, believe you may have a personal injury or medical malpractice claim, have an insurance claim, are involved in a lawsuit, or think someone may owe you money because of something that happened to you, it is essential to advise your bankruptcy attorney.
You do not have to know whether you have a winning case or what the claim may be worth. Regardless of the circumstances, you should disclose the potential claim and let your attorneys determine how it should be handled.
Read Keathley v. Buddy Ayers Construction: https://www.supremecourt.gov/opinions/25pdf/25-6_d1o2.pdf
