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Check bankruptcy filings—You just might dodge a suit

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in Discrimination and Harassment,Human Resources

In Michigan’s current tough economy, many laid off or fired workers are filing for bankruptcy. But that doesn’t mean former employees have given up on filing employment-related lawsuits.

But these tight times have given employers an additional tool for finding out what they’re up against if they are sued.

When someone files for bankruptcy, they must list all their assets, including any potential legal claims. That means if an individual is planning a lawsuit or has already filed an EEOC or Michigan Department of Civil Rights complaint, he or she must tell the bankruptcy court. If and when the case is settled or a jury awards big bucks, the person’s creditors get a shot at those assets.

The same rules give employers an important advantage. If someone filing for bankruptcy knowingly fails to disclose a pending lawsuit in the bankruptcy filing, she loses the right to follow through with the lawsuit. That means the employer being sued may get a free pass.

Recent case: Marisa Rivera sued her former employer, Guaranty Bank, for race, national origin and sex discrimination. Rivera filed for bankruptcy after she knew she was going to pursue Guaranty Bank for discrimination, but didn’t list that claim on her bankruptcy petition. The bankruptcy court then discharged Rivera’s debts.

The bank found out about Rivera’s bankruptcy and that she had not disclosed the suit in her petition. On that basis, Guaranty convinced a court to dismiss Rivera’s discrimination lawsuit. (McDaniel, et al., v. Guaranty Bank, No. 07-12135, ED MI, 2008)

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