USA August 3 2026
The Supreme Court (Court) recently issued an opinion reversing a ruling by the Fifth Circuit Court of Appeals (Fifth Circuit) concerning application of the doctrine of judicial estoppel in bankruptcy cases.1 Although the underlying dispute arose in a Chapter 13 case, the opinion presents implications for bankruptcy cases under all chapters, including Chapter 11.
Background
In Keathley v. Buddy Ayers Construction, Inc., Thomas Keathley (Debtor) commenced a case under Chapter 13 of the United States Bankruptcy Code in the US Bankruptcy Court for the Eastern District of Arkansas (Bankruptcy Court) in December 2019. Along with his Chapter 13 petition, the Debtor filed his schedules of assets and liabilities and a proposed Chapter 13 plan. The Debtor filed an amended Chapter 13 plan on March 11, 2020, and the Bankruptcy Court entered an order confirming that plan on April 20, 2020.
In August 2021, the Debtor was injured in a car accident involving a vehicle driven by an employee of Buddy Ayers Construction, Inc. (Buddy Ayers Construction). The Debtor’s Chapter 13 case was still open, and the Debtor advised his bankruptcy counsel that he intended to file a lawsuit against Buddy Ayers Construction to recover for personal injuries. In December 2021, the Debtor filed suit against Buddy Ayers Construction in the US District Court for the Northern District of Mississippi (District Court). At this point, neither the Debtor nor his counsel had filed amended schedules of assets and liabilities to disclose the personal injury claim to the Bankruptcy Court.
In March 2023, Buddy Ayers Construction filed a motion in the District Court seeking summary judgment on the personal injury claim, asserting that, as a result of the Debtor’s failure to disclose the personal injury claim in his pending Chapter 13 case, the Debtor was precluded from pursuing the claim by virtue of the doctrine of judicial estoppel. The Debtor promptly filed amended schedules with the Bankruptcy Court listing the personal injury claim, and he filed a response in the District Court stating that the failure to list the personal injury claim had been inadvertent. The Debtor also filed an affidavit from his bankruptcy counsel stating that the Debtor had received no benefit from having omitted the claim from his schedules, and argued that, under these facts, judicial estoppel was not warranted.
The District Court rejected this argument and granted summary judgment for Buddy Ayers Construction. The District Court opined that, under Fifth Circuit precedent, the failure to schedule an asset such as the personal injury claim would be considered inadvertent “only if (1) the debtor did not know the facts underlying the claim, or (2) there was no potential motive to conceal the claim.” Opinion at 4-5 (citing Keathley v. Buddy Ayers Construction, Inc., 686 F. Supp. 3d 495, 497, 500-501 (ND Miss. 2023); United States ex rel. Long v. GSDMIdea City, LLC, 798 F. 3d 265, 273 (5th Cir. 2015); Love v. Tyson Foods, Inc., 677 F. 3d 258, 262 (5th Cir. 2012)).
Under that standard, the District Court concluded that the Debtor admittedly was aware of the facts underpinning his personal injury claims and had at least a theoretical motive to conceal the claims. Specifically, if the claims had been scheduled, the Debtor might have been required to pay interest to creditors under his Chapter 13 plan. Having found that the Debtor had knowledge of the claims and a potential motive, the District Court concluded that the failure to disclose was not inadvertent, and it entered summary judgment in favor of Buddy Ayers Construction.2
On appeal, the Fifth Circuit affirmed. In a concurring opinion, Judge Haynes stated that Fifth Circuit precedent appeared to dictate this result, but she questioned whether the goals of judicial estoppel were advanced by applying the doctrine to a case where the failure to schedule appeared to be inadvertent. Judge Haynes also noted that courts in other circuits use a more holistic approach when assessing judicial estoppel arguments in bankruptcy cases.
Supreme Court ruling
On further appeal, the Supreme Court reversed and remanded the case for further proceedings consistent with the Supreme Court’s ruling. Justice Clarence Thomas and Justice Sonia Sotomayor each wrote a separate concurring opinion, as discussed below.
Writing for the Court, Justice Ketanji Brown Jackson explained that judicial estoppel is an “equitable doctrine” designed “to protect the integrity of the judicial process” by “prohibiting parties from deliberately changing positions according to the exigencies of the moment, and by preventing the risk of inconsistent court determinations.”3
The Court noted that, in situations where a debtor seeks to litigate a claim against a third party that was not disclosed in the bankruptcy case, lower courts often apply judicial estoppel to preclude such claims, on the theory that application of judicial estoppel “raises the cost of lying” and “induces debtors to be truthful in their bankruptcy filings.”4 According to the Court, this has led lower courts to adopt a rule that the failure to schedule a claim is an implicit representation that the claim does not exist, justifying application of judicial estoppel in such circumstances.
Justice Jackson explained that although the Court had not previously applied judicial estoppel in the context of bankruptcy, it had, in a different context, stated that it might be appropriate to decline application of judicial estoppel when a party’s prior inconsistent position was due to “inadvertence or mistake.” Assuming, without deciding, that judicial estoppel can be applied in the context of a bankruptcy case and that “inadvertence or mistake”5 creates an exception to that application, the Court concluded that the Fifth Circuit’s interpretation of “inadvertence or mistake” was both too rigid and too broad.
Regarding rigidity, Justice Jackson explained that judicial estoppel is an equitable doctrine that must be applied in accordance with recognized principles of equity, which require consideration of the circumstances presented. The Fifth Circuit test for inadvertence – which requires only that the debtor knew the underlying facts or had a potential motive to conceal a claim – was too rigid and incongruous with those principles as it failed to consider the totality of the circumstances.
Justice Jackson next explained that the Fifth Circuit test was overbroad, as it refuses to characterize as inadvertent any omission to schedule a claim where the debtor was aware of the underlying facts or potentially could benefit from concealing the claim. Justice Jackson noted that a debtor would almost always be aware of the underlying facts and likewise would almost aways benefit (at least hypothetically) from concealing a claim from creditors. Justice Jackson concluded that “the Fifth Circuit’s approach was a one-size-fits-all test that requires courts to view as purposeful nearly every bankruptcy omission,” and that this test is “a poor fit for a fair inquiry into whether an omission is actually the result of inadvertence or mistake.”
Concurring opinions
Justice Thomas, joined by Justice Neil M. Gorsuch, concurred but wrote separately to express doubt about the foundation for the doctrine of judicial estoppel, asserting that equitable authority must be based on “a founding-era antecedent.” Justice Thomas contended that judicial estoppel was not grounded in such an antecedent, and suggested that, in a future case, the viability of the doctrine should be given a closer look.
Justice Sotomayor also concurred and wrote separately to address why application of judicial estoppel may never make sense in pending bankruptcy proceedings, and to stress that, regardless of the context, a judicial estoppel inquiry should always consider the totality of the circumstances. Justice Sotomayor noted that applying judicial estoppel to a debtor in an ongoing bankruptcy case will likely harm both the debtor and creditors, while at the same providing a benefit to a potential tortfeasor. Such application would allow the tortfeasor to evade liability even though it was not prejudiced by the debtor’s failure to disclose the underlying claim, resulting in a windfall.
Justice Sotomayor concluded that any application of equitable estoppel, in any context, must consider the totality of the circumstances, and observed that bankruptcy courts have other tools for addressing nondisclosure, including revoking a confirmation order, denying the debtor a discharge, and fining the debtor.
Key takeaways of Keathley
In Keathley, the Supreme Court rejected the Fifth Circuit’s one-size-fits-all approach for determining whether the failure to disclose a claim was inadvertent. Under the prior standard, certain omissions that may have been inadvertent could be treated as purposeful, potentially adversely affecting debtors and creditors while benefiting a putative third-party defendant that may have suffered no prejudice by the omission.
It is worth noting that there was no allegation that the schedules filed by the Debtor before confirmation of his Chapter 13 plan were not complete and accurate. Because that plan was confirmed prior to the car accident that gave rise to the omitted claim, and because the Debtor advised his bankruptcy counsel of his intent to sue Buddy Ayers Construction, these facts may help to explain why the Debtor believed he had satisfied any applicable disclosure requirements with respect to the claim. The Debtor even submitted an affidavit to the District Court attesting that the omission was inadvertent, yet this was insufficient to satisfy the then-extant Fifth Circuit standard.
Under the rule announced by the Supreme Court, courts will be required to examine the facts and circumstances surrounding an omitted claim and to craft an appropriate remedy. In the Debtor’s case, this may have included requiring the Debtor to amend his Chapter 13 plan to make expedited payments to creditors or pay creditors interest on their claims.
In a Chapter 11 setting, in the event the debtor is found to have concealed assets, bankruptcy courts, in apparent harmony with the rule announced in Keathley, already have a variety of options, including dismissal of the case, conversion of the case to Chapter 7, appointing a Chapter 11 trustee, denying or revoking a discharge, sanctioning the debtor, or, if criminal activity is suspected, referring the debtor to the US Attorney’s Office for prosecution. This range of remedies affords courts flexibility to protect the interests of creditors and debtors alike and, conversely, to avoid granting an unwarranted windfall to potential litigation defendants.
It is also possible that a court could apply judicial estoppel, assuming the facts warrant that result, to prevent the non-disclosing debtor from pursuing a litigation claim. Consistent with the Supreme Court’s reasoning in Keathley, such an application would involve consideration of the totality of the circumstances.
The Keathley ruling may also affect the way courts approach disputes concerning whether a Chapter 11 debtor effectively preserved a “retained cause of action” consistent with Section 1123(b)(3)(B) of the US Bankruptcy Code. This Section permits the retention and enforcement by the debtor, or by an estate representative such as a liquidating trustee, of any claim or interest identified in a Chapter 11 plan and the accompanying disclosure statement and exhibits. Although courts in different circuits use slightly different standards, if the debtor unequivocally indicates an intention to retain a cause of action and identifies the cause of action with sufficient particularity to put the potential defendant on notice, the cause of action will generally be preserved. Failure to take these steps could result in the cause of action being dismissed based on judicial estoppel or the related doctrine of stare decisis.
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DLA Piper – Dennis O’Donnell and Scott Shelley
