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Tuesday, July 16, 2019

Lawsuits should be disclosed in bankruptcy proceedings, says Va. top court

By Deb Rogers | Mar 1, 2017

RICHMOND, Va. (Legal Newsline) – Rulings by a circuit court were correct in requiring that a Virginia woman should have disclosed a pending lawsuit in a bankruptcy estate, Virginia's high court has ruled.

Virginia Supreme Court Justice William C. Mims wrote the court's Feb. 16 opinion in Sheryl Denise Ricketts v. Charlie Edward Strange et al.

Mims wrote that Ricketts did not properly exempt her negligence claim from the bankruptcy estate. She therefore lacked standing to pursue it, and the circuit court properly granted Strange’s motion for summary judgment. Also, the circuit court did not err by denying her motions for leave to amend her complaint.

Rickets filed a complaint in the Circuit Court for the City of Danville on Jan. 16, 2014, just before the statute of limitations was to expire. She alleged that Strange’s negligence caused a car accident.

Strange asked for summary judgment, saying Ricketts had filed a chapter 7 bankruptcy petition in September 2012. This motion alleged Ricketts failed to properly exempt the lawsuit from the bankruptcy estate.

The circuit court had granted the summary judgment, determining that Ricketts failed to disclose her claim against Strange and that it was part of the bankruptcy estate.

Ricketts was required to list assets and “other contingent and unliquidated claims of every nature." But she marked “none.”

Ricketts had argued the she could pursue suing Strange, whom she alleged caused a traffic accident in February 2012 that injured her back, because she had properly exempted it from the bankruptcy estate.

Mims said the court had “competing principles” to consider. A debtor’s claim of exemption should not be so narrow as to defeat an otherwise proper exemption. However, the opinion continues, the operation of the bankruptcy system depends on honest reporting.

While Ricketts didn’t have to go as far as to list every single item in her household, she could have been a little more forthcoming, the opinion stated.

The opinion cited a 2005 case and the simple mention of “Auto Accident Claim” would have been sufficient sufficient to alert the trustee to a potential personal injury claim.

“Ricketts’ overtly general and misplaced exemption language did not exempt her cause of action from the bankruptcy estate,” Mims wrote. “While there are no ‘bright-line rules’ a debtor must follow to exempt a cause of action, the schedules must contain sufficient detail to lead the trustee to the claim ultimately asserted. Ricketts’ schedules do not.”

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