When does judicial estoppel apply to proofs of claim?

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18th Oct 2012

The Fifth Circuit Court of Appeals found that judicial estoppel does not apply to an inconsistent proof of claim filed by the same creditor in a second bankruptcy case where the debtor was dismissed from the prior bankruptcy. In re Oparaji, Circuit No. 11-20871, slip op. (5th Cir. Oct. 5, 2012).

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The Circuit Court found that the mortgage creditor had not advanced clearly inconsistent legal positions by failing to include all accrued post-petition arrearages in each amended claim it filed. It also found that the creditor was not legally responsible to seek the full amount to which it is entitled in each amended claim, reasoning that the mortgage creditor should not be estopped because the debtor had the “ability and responsibility to keep track of his outstanding debt.”

The Circuit Court further found that the Bankruptcy Court’s acceptance of the creditor’s proof of claim was revoked when the Debtor’s bankruptcy was dismissed without a discharge.

It appears that the Circuit Court failed to appreciate the complexity and lack of transparency of mortgage creditor monthly statements and escrow analysis (or lack thereof) while debtors are in bankruptcy. Additionally, there was no consideration of Rule 3002.1, as it appears that the debtor’s first bankruptcy was prior to the effective date of the Rule.

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