If your organization is hit with an employee lawsuit, consider having your attorney check for a bankruptcy filing by the employee who sues you. If the lawsuit isn't listed as an asset with the bankruptcy court, you just may have pulled a "Get out of jail free" card from the deck.
Unscrupulous attorneys sometimes encourage employees to file for bankruptcy to rid themselves of debt before filing a lawsuit against their employers. That way the client and the lawyer can keep more of the settlement or jury award and they don't have to share it with legitimate creditors.
As shown in the following case, you can foil their plan by alerting the court. If the employee doesn't disclose to the bankruptcy court the fact that he or she has or will file a legal claim against you, the employee may not be able to follow through on the lawsuit.
Bottom line: Be sure to ask your attorney to tell the court about any bankruptcy filings by your former employee.
Recent case: After Sharon Jethroe was promoted, her new supervisor allegedly said the position was a "male job" and insisted that she be moved back to her old position. She protested and was eventually fired. She filed a sex discrimination lawsuit in federal court.
Beset with other financial difficulties, Jethroe also filed for bankruptcy. The bankruptcy court asked her whether she had any pending lawsuits (because any lawsuit award could be used to pay creditors). She said no, not mentioning the sex-bias lawsuit, so the bankruptcy court discharged her credit card debt and other debts.
As soon as the court handling her discrimination case found out about Jethroe's bankruptcy filing, it ruled that she had not played fair, and it threw out her discrimination suit. (Jethroe v. Omnova Solutions, No 04-60557, 5th Cir. 2005)