When you file for bankruptcy in Texas, you are required to list all of your assets on your bankruptcy petition. What many debtors do not realize, however, is that a potential legal claim against a third party is considered an asset for purposes of bankruptcy.
A bankruptcy attorney should always ask their clients whether they have any claims against any third party that could potentially be filed in court. Essentially, your bankruptcy attorney needs to know if you have any potential lawsuits.
Why is a potential lawsuit an asset? Because, if you file the claim and win the lawsuit, then you will likely receive financial compensation – and that money is obviously another asset.
One reason that it is so important that you tell your bankruptcy attorney about any potential lawsuits is that if you fail to list the claim on your bankruptcy petition, you could forever lose your right to file a lawsuit based on that claim.
For example, if you have a potential personal injury lawsuit against a driver that caused a car accident in which you were hurt, you must list that potential lawsuit as an asset. If you don’t list it, and you later attempt to file that lawsuit, you may be found guilty of committing bankruptcy fraud. You would then be prohibited from filing the lawsuit even after your bankruptcy case has concluded.
Upon your filing for bankruptcy, a bankruptcy estate is created. All of your assets, which includes potential lawsuits, then become the property of this estate. That is, it becomes property of the bankruptcy estate unless you are able to exempt it, which means that the proceeds of the settlement would be distributed amongst your creditors. For that reason, it is always the smartest move to list and attempt to exempt an asset than to not list it at all.
As always, being completely open and honest with your bankruptcy attorney is key to filing a successful petition.