Keathley v. Buddy Ayers Construction, Inc.

    Issues

    Can judicial estoppel prevent a plaintiff from pursuing a civil claim that he failed to disclose during bankruptcy proceedings, even without evidence that the plaintiff acted in bad faith?

    Oral argument:
    March 24, 2026
    Court below:
    United States Court of Appeals for the Fifth Circuit

    This case asks the Supreme Court to determine whether a bankruptcy debtor who fails to disclose a civil claim during bankruptcy proceedings can later pursue that claim in federal court. The case also asks whether courts can prohibit undisclosed claims when a bankruptcy trustee, instead of the debtor, seeks to continue the lawsuit. Keathley argues that the Fifth Circuit’s rigid judicial estoppel test is inconsistent with equitable principles and suggests a flexible, totality of the circumstances approach that allows debtors to correct mistakes without forfeiting valuable claims. On the other hand, Buddy Ayers Construction, Inc. contends that an objective judicial estoppel rule best aligns with bankruptcy’s goal of protecting creditors while conditioning a debtor’s fresh start on full disclosure of known assets. The Court’s decision has sweeping implications for debtors and creditors and fairness in bankruptcy proceedings.

    Questions as Framed for the Court by the Parties

    Whether the doctrine of judicial estoppel can be invoked to bar a plaintiff who fails to disclose a civil claim in bankruptcy filings from pursuing that claim simply because there is a potential motive for nondisclosure, regardless of whether there is evidence that the plaintiff in fact acted in bad faith.

    Facts

    To discharge his debts, Thomas Keathley filed a bankruptcy petition and Chapter 13 repayment plan in the United States Bankruptcy Court for the Eastern District of Arkansas on December 27, 2019. He later filed an amended plan, which the court confirmed in April 2020. Over a year later, on August 23, 2021, Keathley was entangled in a motor vehicle collision with David Fowler, a truck driver employed by Buddy Ayers Construction, Inc. (“BAC”) in Alcorn, Mississippi. After seeking medical treatment and retaining a personal injury lawyer, Keathley filed negligence claims against BAC and Fowler in the United States District Court for the Northern District of Mississippi on December 29, 2021.  

    Neither Keathley nor his counsel disclosed the personal injury lawsuit to the bankruptcy court during this time. After filing the negligence action, Keathley filed modified bankruptcy plans in March 2022 and June 2022 without ever disclosing his pending personal injury case as an asset. The bankruptcy court confirmed Keathley’s modified plan in July 2022. On March 30, 2023, BAC moved for summary judgment in the personal injury lawsuit, arguing that judicial estoppel prohibited Keathley’s claim given his failure to disclose the lawsuit during his bankruptcy proceeding. On April 4, 2023, Keathley filed an amended bankruptcy schedule disclosing the personal injury lawsuit.

    The district court granted summary judgment to BAC and dismissed Keathley’s personal injury lawsuit on August 8, 2023. The court explained that Fifth Circuit precedent requires dismissal once a party’s failure to disclose a related claim during bankruptcy proceedings is established. Keathley moved to alter the judgment under Federal Rule of Civil Procedure 59(e) and submitted an affidavit from a staff attorney for the Arkansas Chapter 13 Trustee’s office, which argued that a party need not disclose a personal injury action until it approaches settlement or resolution. The district court denied reconsideration of its judgment on December 14, 2023, concluding that the affidavit suggested an unfavorable practice of postponing disclosure.  

    Keathley then appealed both the summary judgment ruling and the denial of reconsideration to the United States Court of Appeals for the Fifth Circuit. On March 3, 2025, the Fifth Circuit affirmed the lower court’s decision, holding that Keathley’s nondisclosure of the civil suit supported the dismissal of his personal injury case. The Fifth Circuit reasoned that Keathley could not avoid dismissal by claiming ignorance of the disclosure requirement. The Fifth Circuit reasoned that the relevant question was not whether he understood the disclosure rules, but whether he knew that the lawsuit existed at all. The Fifth Circuit further found that Keathley had a motive to conceal his civil lawsuit because a favorable outcome in that case could have given creditors reason to object to the plan, thus jeopardizing his interest-free repayment plan.

    On June 27, 2025, Keathley petitioned the Supreme Court of the United States for a writ of certiorari, seeking review of whether nondisclosure of a civil claim in bankruptcy proceedings bars the claim under judicial estoppel. On October 20, 2025, the Court granted a review of this question.

    Analysis

    ROLE OF BAD FAITH

    Keathley explains that other circuits first examine the totality of circumstances to determine whether a debtor’s nondisclosure was accidental or an honest mistake before applying judicial estoppel. On the other hand, Keathley says that the Fifth Circuit presumes bad faith whenever a debtor has potential financial motives to mislead the bankruptcy court. Keathley points to the Fourth and Eleventh Circuits, where a debtor does not lose an undisclosed claim unless the court finds that the debtor intended to mislead the bankruptcy court. Keathley argues that the Fifth Circuit’s presumption of bad faith transforms judicial estoppel, a flexible doctrine intended to promote equity, into a categorical test without considering the debtor’s intent. Keathley highlights how the Supreme Court has rejected categorical approaches for other equitable doctrines, including for patent injunctions and equitable tolling for attorney misconduct. Keathley argues that the Fifth Circuit’s presumption of bad faith is too rigid because debtors in nearly every bankruptcy proceeding have some potential to conceal a claim. Specifically, Keathley argues that the Fifth Circuit’s presumption of bad faith is irrebuttable, which is inconsistent with the Court’s refusal to adopt irrebuttable presumptions in Johnson v. Williams and Vlandis v. Kline, among other precedents. Keathley also contends that the Fifth Circuit’s rigidity renders debtor intent irrelevant, even where good faith is demonstrable by evidence of the debtor correcting the omission or disclosing the claim to bankruptcy counsel. Next, Keathley explains that a totality of circumstances inquiry should consider a range of factors. Keathley states that such factors should include the debtor’s level of sophistication, their explanation for nondisclosure, the clarity of the bankruptcy forms, and other irregularities in bankruptcy schedules given the likelihood of making mistakes in bankruptcy proceedings.

    BAC counters that judicial estoppel relies on objective considerations to discourage parties from taking inconsistent positions. BAC maintains that judicial estoppel’s protections would be gutted if debtors could win two inconsistent victories whenever their bad faith could not be proven. BAC argues that judicial estoppel is not intended to punish litigants for seeking inconsistent results, but to simply avoid inconsistencies throughout the judicial process. BAC alleges that tying judicial estoppel to intent to mislead would undermine the doctrine’s purpose of preserving public trust in the judicial process. BAC also contends that such a subjective standard is inappropriate because courts generally recognize that ignorance of the law does not excuse a wrongdoer. Further, BAC maintains that a debtor’s disclosure to bankruptcy counsel is irrelevant, as a party is bound by the acts of their chosen agent. Specifically, BAC notes that malpractice sufficiently remedies attorney-caused nondisclosure, making it incoherent to also shield the debtor from the consequences of failing to disclose in bankruptcy proceedings. BAC argues that this line of reasoning would also enable petitioners to avoid consequences in other scenarios, such as ignoring signed contract obligations, by blaming the lawyer’s bad advice or actions. BAC explains that Keathley’s proposed multi-factor test misappropriates flexibility in equitable doctrines and lacks a necessary limiting principle. BAC further contends that even with the application of Keathley’s factors, courts would struggle to determine subjective intent because debtors will likely always testify that their omissions were made in good faith.

    ALIGNMENT WITH BANKRUPTCY PRINCIPLES

    Keathley argues that the Fifth Circuit’s rigid rule is incompatible with the Bankruptcy Code’s goal of giving debtors the opportunity to rebuild their lives. Additionally, Keathley argues that the Bankruptcy Rules acknowledge that individual debtors may make mistakes or rely on inexperienced counsel by allowing Chapter 13 debtors to amend their petition or statement before the case’s conclusion. Accordingly, Keathley contends that Congress intended debtors to be able to correct omissions without losing their rights. Keathley maintains that a more holistic inquiry also aligns with the way bankruptcy courts assess debtor’s intent. Keathley asserts that it is illogical for federal district courts evaluating judicial estoppel to consider less evidence than bankruptcy courts do when determining debtors’ intent. Keathley argues that a holistic approach permits civil courts to consider the bankruptcy court’s findings, which can be more accurate since bankruptcy courts have intricate familiarity with the debtor, the bankruptcy estate, the debtor’s behavior during the proceedings, and the financial consequences of a debtor’s nondisclosure. Keathley maintains that a more open-ended judicial estoppel rule better aligns with the bankruptcy system’s own practice for assessing whether a debtor acted in bad faith.

    On the other hand, BAC argues that because bankruptcy proceedings rely on honest disclosure of assets, and debtors have financial incentives to hide those assets, courts should not apply a judicial estoppel rule that turns on subjective intent. In other words, BAC contends that a subjective standard would undermine the purpose of judicial estoppel in bankruptcy proceedings, which is to thwart dishonest debtors and shield innocent creditors. BAC asserts that there is no justification for limiting the bad faith requirement in judicial estoppel exclusively to bankruptcy law. In fact, BAC argues that the unique characteristics of bankruptcy proceedings make a compelling case for applying an objective standard there more than anywhere else. BAC agrees that bankruptcy’s goal is to provide the debtor with a fresh start, but BAC argues that the fresh start relies on the debtor’s full disclosure of assets. BAC explains that other bankruptcy goals, including a timely resolution and maximizing value to creditors, are similarly furthered by the application of an objective test. BAC asserts that judicial estoppel must incentivize full asset disclosure while excusing genuinely unknowing omissions, a balance that only an objective test can strike. BAC maintains that bankruptcy law depends on a balance between creditor and debtor interests.

    Discussion

    EFFECTS ON DEBTORS AND CREDITORS 

    In support of Keathley, a group of retired bankruptcy judges and Professor Robert M. Lawless (collectively “Retired Judges”) argue that the Fifth Circuit rule forces Chapter 13 debtors to forfeit potentially valuable civil claims because of a disclosure mistake, contravening bankruptcy’s goal of giving debtors a fresh start. Retired Judges highlight that this rule gives an alleged wrongdoer an unjustified windfall because a defendant can escape liability without the court deciding on the merits. Retired Judges further explain that dismissal due to judicial estoppel hurts creditors because once a court wipes out the claim, the estate loses an asset that could have produced money for repayment. The American Association for Justice (“AAJ”) argues that dismissal should be a last resort because a cause of action is a form of property and courts should not take it away without a meaningful inquiry into whether a debtor intended to deceive anyone.

    In response, BAC argues that an objective test for judicial estoppel will maximize recovery for creditors. BAC explains that nondisclosure of assets decreases the amount available to creditors from the estate during bankruptcy proceedings. BAC stresses that bankruptcy law functions most effectively when it strikes an equitable balance between creditors and debtors. BAC argues that a subjective judicial estoppel rule would incentivize debtors to conceal their claims and other assets and only disclose if they are caught. BAC contends that this would cause creditors to broadly fear that debtors are concealing assets, driving up interest rates in response, which would ultimately harm debtors who act in good faith. BAC maintains that a judicial estoppel rule rewarding honest disclosures better serves all parties in the long run. The United States, in support of vacatur, contends that the American bankruptcy process adequately protects creditors without reaching judicial estoppel. For example, the United States highlights that plan modification, delayed disclosure of assets, or conversion of a Chapter 11, Chapter 12, or Chapter 13 case to a Chapter 7 case could serve as better alternatives to benefit the estate and its creditors.

    ADMINISTRABILITY AND FAIRNESS 

    In support of Keathley, Retired Judges argue that courts should use a fact sensitive approach rather than a categorical rule that treats knowledge and possible motive as sufficient to infer wrongful intent. Retired Judges also emphasize that Chapter 13 is complex, its forms can be difficult even for represented debtors, and ordinary filers may not realize that a possible claim constitutes an asset. Retired Judges note that trustees and bankruptcy courts are better positioned than an outside tort defendant to decide whether the omission harmed creditors. AAJ adds that nondisclosure cases are often complicated by the fact that a debtor may know they suffered an injury without recognizing that the injury gives rise to a legal claim or that they must disclose it in bankruptcy. AAJ argues that a rigid rule risks punishing confusion, misunderstanding, or counsel error as if it were deliberate deceit.  

    Conversely, BAC argues that a more forgiving standard would be difficult to administer because it would require broad inquiries into the debtor’s state of mind, attorney advice, and explanations for the omission. BAC argues that a subjective standard of judicial estoppel would force courts to engage in open-ended, multi-factor balancing tests that would create unpredictable or arbitrary results. BAC also argues that applying multi-factor tests would force district courts to look beyond their own jurisdiction and assess the practices of bankruptcy courts operating under different laws, which would erode the precedent binding the district court itself. BAC asserts that an objective approach would encourage early disclosure, make disputes more predictable, and protect creditors from incomplete information. BAC therefore contends that courts should not excuse nondisclosure based on later claims of misunderstanding or reliance on counsel because that would weaken timely reporting in a system that depends on it.

    Conclusion

    Authors

    Written by:    Raj Walia and Jeff Feng

    Edited by:      Alexandra Fertig

     

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