On June 11, 2026, the U.S. Supreme Court issued a unanimous decision in Keathley v. Buddy Ayers Construction, Inc., No. 25-6, 608 U.S. ___ (2026), clarifying when a debtor’s failure to disclose a potential legal claim in bankruptcy may prevent the debtor from later pursuing that claim.
The case arose from Thomas Keathley’s Chapter 13 bankruptcy, which he filed in 2019. While the bankruptcy remained pending, Keathley was injured in an automobile accident. He informed his bankruptcy attorney of the accident, but his bankruptcy schedules were not amended to disclose the resulting personal-injury claim as a potential asset. Keathley later filed suit against Buddy Ayers Construction, whose employee allegedly caused the accident.
The defendant moved for summary judgment based on judicial estoppel, an equitable doctrine that may prevent a party from taking inconsistent positions in separate judicial proceedings. The defendant argued that Keathley’s failure to disclose the claim in bankruptcy barred him from pursuing it in a later lawsuit. Keathley then amended his bankruptcy schedules and plan to include the claim, maintaining that the original omission was an inadvertent mistake rather than an intentional effort to conceal an asset.
Applying existing Fifth Circuit precedent, the federal district court and the Fifth Circuit concluded that Keathley’s omission could not be considered inadvertent because he knew of the claim and could have benefited financially from failing to disclose it. His lawsuit was dismissed without a broader examination of his explanation, his communications with bankruptcy counsel, or whether the omission resulted in any actual benefit.
The Supreme Court rejected that mechanical approach, reasoning that judicial estoppel is an equitable doctrine that must be applied in light of the particular facts and circumstances of each case. Courts therefore must consider the totality of the circumstances when determining whether a debtor’s failure to disclose a claim was intentional, inadvertent, or mistaken. Because debtors generally know the facts underlying their claims and may almost always have some theoretical financial motive not to disclose an asset, the Fifth Circuit’s test risked treating nearly every omission as deliberate. The Court vacated the judgment and returned the case to the lower courts for further consideration under the proper standard.
The decision limits the use of judicial estoppel as an automatic basis for dismissing claims omitted from bankruptcy disclosures. Going forward, bankruptcy courts and courts handling bankruptcy-related litigation must examine the full factual context, including the debtor’s explanation, communications with counsel, corrective disclosures, and any actual effect on the bankruptcy estate or creditors. Although Keathley does not excuse incomplete disclosures, it requires courts to distinguish deliberate concealment from genuine mistake before imposing the significant consequence of barring a debtor’s claim.
Debtors and their counsel should always identify and disclose potential causes of action promptly and amend bankruptcy schedules when required.
For questions about how this decision may affect a consumer bankruptcy matter, please contact Michelle Bass of WBK Bankruptcy.