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Check bankruptcy filings for possible ‘Get out of jail’ card

by on
in Employment Law,Human Resources

Employees who have been fired or otherwise lose their jobs frequently encounter financial problems and end up in bankruptcy court.

Bankruptcy trustees have the right to pursue any claims the bankrupt person may have against others—including former employers. Trustees do this to make sure creditors get what they are due if there is any money available. But they can pursue only those claims they know about.

Consider what might happen in a typical employee bankruptcy case. The employee fills out a list of assets so the trustee can determine how much potential money is available to satisfy debts. A pending legal claim is an asset because it could bring the employee additional money. If the employee doesn’t list a pending EEOC or lawsuit claim against his former employer, the bankruptcy court may miss important assets and discharge the debts.

Courts are now adopting a hard-line view and frequently dismiss employment lawsuits if the employee failed to mention the claim in the original bankruptcy filing.

The result:
Employment law case dismissed.

Recent case:
Muhammad Javaid worked as a security guard. When his employer lowered the pay scale, he earned less money, which he complained about. Eventually, the employer fired Javaid, who filed a federal Title VII lawsuit charging race and other discrimination.

A month later, he filed for bankruptcy and never listed the lawsuit as an asset or pending litigation.

The former employer, after learning that Javaid had his debts discharged, asked the court to throw out the case. The court agreed. It reasoned that by not putting down the lawsuit on his asset list, Javaid was admitting it had no value. It dismissed the case. (Javaid v. Allied-Barton Security Services, et al., No. 07-0386, ED CA, 2008)

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