Supreme Court Limits Landmine Lurking in Many Consumer Cases

The Supreme Court ruling in Keathley v. Buddy Ayers Construction, Inc., 608 U.S. __, 2026 WL 1686028 (June 11, 2026) is a notable step forward in helping consumer plaintiffs overcome a hidden but troublesome affirmative defense, when, as often happens, current consumer claims were left off schedules in a consumer’s prior bankruptcy.  Previously, too often meritorious cases with these facts have been dismissed under the doctrine of bankruptcy judicial estoppel. 

The unanimous ruling in Keathley rejects a commonly applied test for judicial estoppel and sends a clear message that application of judicial estoppel based on a prior bankruptcy has gotten out of hand.  Keathley offers clear signs of the Court’s skepticism as to any use of bankruptcy judicial estoppel to dismiss consumer law claims. 

This article first explains judicial estoppel and bankruptcy judicial estoppel and its dangers to consumer litigation.  Then both the Keathley holding and its broader implications are analyzed. Finally, for litigation after Keathley, advice is provided on how to overcome bankruptcy judicial estoppel, including six litigation tips.  While bankruptcy judicial estoppel comes up in all kinds of consumer litigation, NCLC’s most thorough analysis is in Fair Debt Collection §§ 14.3, 14.4.1.

Prior Supreme Court Judicial Estoppel Precedent

Judicial estoppel is an equitable doctrine intended to protect the courts’ integrity by preventing a party from intentionally changing positions in litigation depending upon the “exigencies of the moment” to the detriment of an opposing party. Under the doctrine, a party is precluded from asserting a claim in a legal proceeding inconsistent with a claim the same party made in a previous proceeding. 

The Court, in its only prior ruling on the doctrine in New Hampshire v. Maine, 532 U.S. 742, 750 (2001), finds the doctrine applies when a party: takes a later position clearly inconsistent with its earlier position; succeeded in persuading the court to accept the earlier position, so that later judicial acceptance would suggest that the first or second court was deliberately misled; and in asserting an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party. Id. at 750–751.

Judicial Estoppel’s Wreckage of Consumer Claims After a Consumer’s Bankruptcy 

Debtors in bankruptcy must file verified schedules listing all their assets—property potentially available to liquidate for the benefit of creditors or to fund payments under a bankruptcy plan. 11 U.S.C. § 521(1).  Trustees, creditors, and courts rely on these schedules to define the property of the bankruptcy estate. Potential legal claims are an asset the debtor must include in the schedules. 

Judicial estoppel comes into play when a consumer’s legal claim arguably existed before the consumer’s bankruptcy filing (or, according to some courts, while a chapter 13 bankruptcy case was pending), and the consumer did not identify the claim in their bankruptcy schedules. When the undisclosed legal claim is later filed in a non-bankruptcy court, defendants often raise judicial estoppel as an affirmative defense to dismiss the case, contending that the consumer first asserted in the bankruptcy that the legal claim did not exist but now claims it does.

A standard defense attorney practice when faced with a consumer claim is to perform a PACER search for each plaintiff’s bankruptcy history, including whether the consumer’s bankruptcy schedules listed the claims raised in the current lawsuit. If these claims had accrued at the time of the bankruptcy and were never scheduled, a motion to dismiss or for summary judgment raising judicial estoppel follows.  This commonly happens in all types of consumer litigation:

• In dismissing TILA claims based on judicial estoppel courts routinely reject consumers’ arguments that they were unaware of claims arising from their mortgage origination documents when they filed a prior bankruptcy case. See, e.g., Mata v. De Pasol, 2022 WL 17722431, at *3 (S.D. Tex. Sept. 27, 2022), adopted by 2023 WL 2226800 (S.D. Tex. Feb. 24, 2023). 
• Courts have dismissed TILA rescission claims not disclosed as assets in bankruptcy schedules. See, e.g., Tyson v. Bank of Am., 2016 WL 4070134 (N.D. Cal. July 29, 2016).  
• When a mortgagor facing foreclosure filed a RESPA claim involving a dual tracking violation, the court dismissed the claim because the violation occurred before the mortgagor filed a bankruptcy case, and she omitted the RESPA claim from the schedule of her assets. Gardner v. Specialized Loan Servicing L.L.C., 2023 WL 2718432, at *10 (N.D. Tex. Mar. 8, 2023), adopted by 2023 WL 2727548 (N.D. Tex. Mar. 30, 2023).
• FDCPA claims that did not appear in past bankruptcy schedules have been dismissed where courts treated receipt of legal documents or debt collection letters as knowledge of the legal claims. See, e.g., Weingard v. Unifund CCR, L.L.C., 2015 WL 2149482 (N.D. Ill. May 6, 2015).
• In several instances, debtors were able to amend bankruptcy schedules to add an omitted FDCPA claim and even received acknowledgment of the bankruptcy court’s abandonment of any interest in the claims. The courts still applied judicial estoppel to dismiss the FDCPA claims. See, e.g., Orkies v. Midland Funding, L.L.C., 2015 WL 796360 (W.D. Ky. Feb. 24, 2015).

Consumer Claims of Mistake and the Knowledge/Motive Presumption

As can be seen from the examples above, a consumer’s failure to list a potential legal claim in bankruptcy schedules is often by mistake, and courts generally acknowledge that judicial estoppel does not apply when such an omission was due to mistake or inadvertence.  But under a widely applied test, courts have not allowed for mistake when the debtor had knowledge of the factual basis for the undisclosed claim and had a motive to conceal it. See Stanley v. FCA US, L.L.C., 51 F.4th 215, 219 (6th Cir. 2022). 

Courts find motive to deceive where the debtor had a financial incentive to conceal a legal claim to avoid making the proceeds available to bankruptcy creditors.  Such a motive can be implied whenever a legal claim was omitted from bankruptcy schedules. 

Courts find that the debtor knew of a claim where the debtor had enough information to suggest that they may have a possible cause of action, even though they did not know all the facts or the legal basis for the cause of action.  See In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th Cir. 1999). This standard ignores the lack of sophistication of consumer debtors and the limited resources available to them to investigate potential legal claims as they prepare bankruptcy schedules.

Some courts further narrow allowance for the consumer’s mistake in failing to disclose a potential claim by finding a rebuttable inference that the debtor had knowledge and motive, putting the burden on the consumer to disprove knowledge and motive. See Krystal Cadillac Oldsmobile GMC Truck, Inc. v. Gen. Motors Corp., 337 F.3d 314, 321 (3d Cir. 2003).  Despite courts past damaging application of bankruptcy judicial estoppel, Keathley provides new hope for consumers, and even hints that bankruptcy judicial estoppel should never prevent pursuit of consumer claims. 

Critique of Bankruptcy Judicial Estoppel

Keathley v. Buddy Ayers Construction Co. came before the Supreme Court in the context of an ongoing reevaluation of the propriety of judicial estoppel in the lower courts. Critics have focused on three basic problems with application of the doctrine in the bankruptcy context. 

First, bankruptcy judicial estoppel, without consideration of the merits, extinguishes a legal claim involving parties and issues unrelated to the bankruptcy misconduct that the doctrine is supposed to check. The defendant in the later proceeding receives a windfall because of a technical error appearing on a bankruptcy form that typically had no impact on the defendant.

Second, judicial estoppel can harm creditors of the bankruptcy estate. The creditors could receive a substantial payout if the bankruptcy case were reopened or a plan amended since they would have valid claims to nonexempt proceeds from the litigation. If judicial estoppel leads to dismissal of the lawsuit, they receive nothing. An asset that could otherwise be available to pay creditors is “vaporized.” Biesek v. Soo Line R. Co., 440 F.3d 410, 413 (7th Cir. 2006). 

Third, courts recognize exceptions to bankruptcy judicial estoppel where the failure to timely schedule a legal claim was due to mistake or inadvertence. However, the mistake or inadvertence standard has proven difficult to apply. Judicially created standards have been too rigid or too vague. Courts of appeal, and even courts within the same circuit, have applied “mistake or inadvertence” standards in ways that are highly discretionary, and ultimately unpredictable.

The Facts in Keathley

The Keathleys were operating under a confirmed chapter 13 bankruptcy plan when Mr. Keathley, after a vehicle accident, filed a personal injury lawsuit in district court but did not amend the bankruptcy schedules to list the lawsuit as an asset. The defendant moved to dismiss citing judicial estoppel, that Mr. Keathley was actively pursuing litigation in one court while denying the existence of the same lawsuit in the bankruptcy court. 

In response, Mr. Keathley amended his bankruptcy schedules to identify the lawsuit as an asset. The bankruptcy court, the chapter 13 trustee, and the Keathleys’ bankruptcy creditors took no action in response to the amended schedule. Mr. Keathley claimed that the delay in amending his schedules was due to inadvertence.

The district court dismissed the case on grounds of judicial estoppel.  Under Fifth Circuit precedent, the omission could be excused by mistake or inadvertence only when: (1) the debtor was unaware of the legal claim at the time of the omission, or (2) there was no hypothetical motive to conceal the claim. Because Mr. Keathley was aware of his claim and had a motive to conceal it until the opposing side raised the issue, judicial estoppel mandated dismissal of the lawsuit. The decision was affirmed by the Fifth Circuit

The Supreme Court Limits Bankruptcy Judicial Estoppel

Keathley is the first Supreme Court decision on bankruptcy judicial estoppel, and, after New Hampshire v. Maine, only the second judicial estoppel case in any context to reach the Court. In a unanimous ruling the Court vacated the Fifth Circuit’s judgment and remanded the case. 

Justice Jackson’s brief majority opinion focuses on the Fifth Circuit’s litmus test that limited consideration of mistake or inadvertence to the questions of whether the debtor knew of the facts underlying a claim and whether there was a potential motive to conceal it. She found that test out of step with equitable principles upon which judicial estoppel is based. The lower court “should have examined the totality of the circumstances surrounding Keathley’s failure to report his personal-injury claims earlier.” Keathley, at *5. Under a “totality of circumstances” standard, courts must examine facts to determine the role that mistake or inadvertence played in an omission from bankruptcy schedules, rather than rely solely on a presumption. 

Neither the main opinion nor the concurrences articulate criteria to replace the Fifth Circuit presumption of knowledge/motive. The main opinion cites five court of appeals rulings that apply the “more fact-specific inquiry” that the Court finds appropriate. Keathley, at *4. But these opinions do not elaborate on specific standards to guide this fact-based inquiry. Only Slater v. United States Steel Corp., 871 F.3d 1174, 1185 (11th Cir 2017) (en banc), proposes several factors for courts to consider. These included: the debtor’s level of sophistication; the explanation for the omission; actions taken to correct the omission; and the bankruptcy court’s response to the correction. Justice Sotomayor’s concurrence refers to the Slater criteria as an approach that “more closely adhere[s] to the ‘case-by-case’ assessment that equity requires and that judicial estoppel is intended to facilitate.” Keathley, at *11.

Keathley Hints at a Broader Attack on Bankruptcy Judicial Estoppel

Keathley helps consumers in the Fifth and Tenth Circuits where courts had applied a rigid presumption to determinate mistake and inadvertence. The ruling may be even more significant for issues that the Court acknowledged but decided not to reach. The Court left open whether courts should apply judicial estoppel at all in the bankruptcy context. Justice Jackson prefaces the ruling by writing, “For purposes of this opinion, we assume without deciding that judicial estoppel can apply in the bankruptcy context and that ‘inadvertence or mistake’ can function as an exception to that application.”  Keathley, at *4.  

Justices Thomas and Gorsuch in their concurrences are more adamant in calling judicial estoppel into question. Justice Thomas notes the incongruity of dismissing a lawsuit against a defendant because the plaintiff “failed to mention the cause of action on a form in prior bankruptcy proceedings involving an entirely unrelated set of parties,” Keathley, at *7, and even though the defendant was not affected by what the plaintiff did in the bankruptcy proceedings Justice Thomas finds that judicial estoppel “appears to have no basis in any statute, any Federal Rule of Civil Procedure, or any traditional inherent power of federal courts.”  Id. 

In her concurring opinion, Justice Sotomayor questions the propriety of having non-bankruptcy courts impose judicial estoppel while proceedings are ongoing in a bankruptcy court. Keathley, at * 8. The bankruptcy courts are in a better position to assess the harm from nondisclosures and impose effective sanctions for actions that impair the functioning of the bankruptcy system. While focusing on the application of judicial estoppel while a chapter 13 case is pending, she also notes the authority for reopening a closed chapter 7 case to amend schedules. Once reopened, the chapter 7 case can be administered with the claim as an asset.  The concerns that judicial estoppel is supposed to address can be better handled by the bankruptcy courts. 

A concurring opinion in the Fifth Circuit’s Keathley decision similarly argued for referral of the nondisclosure issue to the bankruptcy court for consideration of possible sanctions, as opposed to dismissal of Mr. Keathley’s personal injury lawsuit. Keathley v. Buddy Ayers Constr., Inc., 2025 WL 673434, at *8 (5th Cir. Mar. 3, 2025) (Haynes, J. concurring). 

Another important issue that the Keathley court specifically declined to address was whether a chapter 13 debtor in Mr. Keathley’s position even had an obligation to amend his bankruptcy schedules to disclose a legal claim that arose after confirmation of his chapter 13 plan. Keathley, at *3, n.1. This is an issue that has divided lower courts, in part because there is no requirement in the Bankruptcy Code or in the Federal Rules of Bankruptcy Procedure to disclose causes of action acquired after a chapter 13 case is filed, as discussed in NCLC’s Consumer Bankruptcy Law and Practice § 12.8.6.

Consumer Litigation After Keathley

Keathley’s adoption of the “totality of the circumstances” standard is unlikely to resolve the inherent problem with non-bankruptcy courts’ application of judicial estoppel in response to alleged misconduct in bankruptcy cases. Judges presiding over non-bankruptcy cases will continue to make assessments about the intent or bad faith of someone signing off on bankruptcy forms months or years earlier. 

One of the decisions the Keathley cites to as appropriately applying a “totality of circumstances” approach is Stanley v. FCA US, L.L.C., 51 F. 4th 215 (6th Cir. 2022). Keathley, at *4 n.4.  Reviewing a finding of judicial estoppel in a chapter 13 context similar to Keathley, the Stanley court agreed that debtor failed to “demonstrate absence of bad faith.” 51 F.4th at 221.  It is not inconceivable that on remand of Mr. Keathley’s case a court applying the “totality of the circumstances” standard could find that he failed to “demonstrate absence of bad faith.”

After Keathley, consumers should aggressively counter affirmative defenses based on bankruptcy judicial estoppel. Highly problematic is a person having “knowledge” of the existence of a legal claim solely based on awareness of some facts upon which a cause of action could be based. For a personal injury claim, a person knows when they have been in a motor vehicle accident and may have a claim. The same is not true when the facts leading to a legal claim are buried in loan documents signed a decade ago, or in a pile of old debt collection letters. 

When faced with a mortgage foreclosure, a consumer may for the first time consult with an attorney who is experienced in recognizing TILA or RESPA claims. It is unlikely a consumer’s bankruptcy attorney reviewed all relevant mortgage documents for potential TILA and RESPA claims or listed them on the bankruptcy schedules. 

Disputes over bankruptcy schedules should be directed to the bankruptcy courts. The Keathley majority opinion does not undercut arguments for this approach, and the concurring opinions support it. As many courts, including Justice Sotomayor in her concurring opinion in Keathley have noted, the bankruptcy courts have an array of options for sanctioning deceitful conduct by participants in a bankruptcy case, including monetary penalties, denial of discharge, and even referral to criminal prosecution. 

In the rare instance where nondisclosure of a claim was intentional and motivated by bad faith, the bankruptcy courts have ample tools to punish misconduct, deter bad faith conduct, protect creditors’ rights, and allow meritorious litigation to continue. These bankruptcy-based sanctions are more effective to protect the bankruptcy system than dismissal of unrelated litigation involving a party with no connection to the bankruptcy.

Six Litigation Tips for Defeating Bankruptcy Judicial Estoppel

1. Investigate the client’s bankruptcy history 

Conduct a PACER search of a plaintiff’s bankruptcy history before filing a lawsuit.  Schedules filed with any past bankruptcy will show whether a legal claim that may have existed at the time was disclosed.  For details about what it means to “schedule” a legal claim in bankruptcy filings and the degree of specificity this entails see NCLC’s Consumer Bankruptcy Law and Practice § 7.3.7.2 and NCLC’s Fair Debt Collection § 14.3.1.

2. Promptly amend bankruptcy schedules to add undisclosed claims 

The bankruptcy rules authorize the amendment of schedules. Fed. R. Bankr. P. 1009(a). A closed chapter 7 case can be reopened to allow a trustee to administer a previously undisclosed asset, such as a legal claim. 11 U.S.C. § 350(b). Amend schedules promptly and proactively, rather than doing so in reaction to the opposing party’s raising bankruptcy judicial estoppel.  The debtor may be able to exempt all or part of the claim’s value.  See NCLC’s Consumer Bankruptcy Law and Practice § 10.3.

The chapter 7 trustee, with court approval, can authorize the consumer’s attorney to represent the bankruptcy estate in the non-bankruptcy litigation, with proceeds of the lawsuit to be divided between bankruptcy creditors and the debtor to the extent of the debtor’s allowed exemptions. 

If the likely recovery is insubstantial, the trustee may abandon any interest in the lawsuit, leaving the debtor free to pursue the claims as if there had been no bankruptcy. The procedures for reopening a closed bankruptcy case are discussed in NCLC’s Fair Debt Collection §§ 14.3.2, 14.3.3.3.

In a pending chapter 13 case the debtor can amend schedules and the terms of a plan as appropriate to adjust to an undisclosed pre-bankruptcy legal claim or to add a claim that arises during the pendency of the case. As described above, whether chapter 13 debtors must disclose legal claims that arise during a chapter 13 plan is disputed. 

3. Argue a judicial estoppel ruling is premature until a there is a fully developed record 

Defendants often raise judicial estoppel by way of a motion to dismiss, sometimes incorporating excerpts from the plaintiff’s bankruptcy schedules to show the absence of a disclosure. Presentation of judicial estoppel claims in this posture invites the court to resort to presumptions and formulae.  The Keathley ruling and the circuit court decisions it cites emphasize the importance of a complete factual record for a judicial estoppel determination. A court cannot make this determination solely on the pleadings. See NCLC’s Fair Debt Collection § 14.3.3.3.

4. Ensure the defendant proves all elements of judicial estoppel 

Judicial estoppel is an affirmative defense; the defendant has the burden to establish the defense.  Plaintiffs should not be required to prove a negative, that they did not act in bad faith in the omission from bankruptcy schedules. At summary judgment, offer as much evidence as possible to support mistake or inadvertence. Once the plaintiff has provided some such evidence, the court should deny the defendant’s summary judgment motion. See NCLC’s Fair Debt Collection § 14.3.3.3.

5. Refer to judicial estoppel factors listed in Slater v. U.S. Steel Corp. 

Keathley cites favorably to Slater v. United States Steel Corp., 871 F.3d 1174, 1185 (11th Cir 2017) (en banc). Unlike other courts of appeals that have ruled on bankruptcy judicial estoppel, the Slater court listed specific factors for a court to consider in making a “totality of the circumstances” determination, several of which can be helpful in consumer law claims: the level of the debtor’s sophistication, corrective action the debtor took to amend schedules, and the practical impact of the correction. Often temporary omission of the claim from schedules has no concrete impact on creditors or the conduct of the bankruptcy. 

6. Watch for specific circumstances where judicial estoppel does not apply

Even when generally applicable, judicial estoppel does not apply:

• When legal claims accrue after filing a chapter 7 petition. The filing date of the chapter 7 petition is a cut-off to determine whether a legal claim is property of the bankruptcy estate. See NCLC’s Consumer Bankruptcy Law and Practice § 2.5.1. There is no duty to amend schedules to add a legal claim that arose after a petition date. Debtors have good arguments that there is no obligation to disclose legal claims arising during the pendency of a chapter 13 plan as well, an issue the Supreme Court declined to address in Keathley. See NCLC’s Consumer Bankruptcy Law and Practice § 12.8.6; NCLC’s Fair Debt Collection § 14.3.3.2.
• To bankruptcy cases where debtor never received a discharge. Many bankruptcy cases, particularly under chapter 13, are dismissed before the bankruptcy court enters a discharge order. An essential element of judicial estoppel is the earlier court’s adoption of the legal position of the party to be estopped.  There is a question as to whether the triggering of the automatic stay or a plan confirmation order represents the adoption of the debtor’s legal position in the manner that judicial estoppel contemplates.  See NCLC’s Fair Debt Collection § 14.3.3.2.
• When debtor made de facto disclosure of a claim during bankruptcy. Judicial estoppel focuses on disclosures on the bankruptcy schedules. However, some courts recognize less formal disclosures, such as the debtor’s statements during the meeting of creditors or correspondence with the trustee as putting the trustee on notice of the existing legal claims. These informal disclosures rebut suggestion of intentional concealment. See NCLC’s Fair Debt Collection § 14.3.3.2.
• When legal claims seek recoupment or equitable relief. Many consumer claims can be characterized as seeking recoupment against the creditor’s claim. A consumer’s right to recoupment is not considered property of the bankruptcy estate. See NCLC’s Consumer Bankruptcy Law and Practice § 17.5.2.4. A claim for equitable relief, such as a TILA rescission claim, does not seek recovery of an asset that can be liquidated for the benefit of creditors. While a rescission claim could possibly produce nonexempt property, it is not a claim for monetary relief.