An Employee’s Bankruptcy Can Assist New Mexico Employers Defend Against The Employee’s Claims

When defending against an employee’s claims, an initial step that every employer should take is to determine if the employee has filed a Chapter 7 Voluntary Petition for bankruptcy in the recent past. If an employee filed for bankruptcy and failed to identify his EEOC charge or potential claims against his employer as an asset of his bankruptcy estate, the employee might be barred from pursuing the claim against the employer.

Pursuant to the bankruptcy statutes, a debtor’s potential legal causes of action are assets of his estate which must be disclosed for creditors. The federal courts which govern New Mexico interpret this language to mean that a debtor must disclose an EEOC charge on his bankruptcy petition, even if the EEOC has not issued a determination on the charge and even if the employee has not filed suit against the employer. If an EEOC charge is not properly disclosed, the employee cannot pursue the claim because he is not the “real party in interest.” This means that the employee’s attempt to hide his claim from his bankruptcy creditors prevents the employee from separately pursuing the claims for his own benefit. The employee’s claim belongs to the bankruptcy estate and the bankruptcy trustee is the only party who can pursue the claim. This is beneficial to employers who may find it easier to reason or negotiate with a third party bankruptcy trustee than an employee and his counsel.

In some instances, a court may find that the employee who failed to identify his claim on his bankruptcy petition is judicially estopped from pursuing his claim against the employer. This means that neither the employee nor the bankruptcy trustee may pursue the claim. Judicial estoppel occurs when the debtor/employee makes a representation to one court and then tries to rely on an inconsistent representation before another court. For example, during the bankruptcy process, a debtor has to affirm to the bankruptcy court that all his assets have been identified and that he does not have any unidentified claims or assets. When an debtor makes this representation to the bankruptcy court and then later tries to pursue an undisclosed claim against his employer in a different court, the judge can find that the debtor/employee’s deception bars the claim against the employer in its entirety. The claim cannot be pursued by the employee or his bankruptcy trustee. Although courts recognize that this could result in a windfall for the employer, courts reason that barring the employee from pursuing his undisclosed claims furthers the goal of complete and fair disclosure during the bankruptcy process, which ultimately benefits all creditors.

If an employer as access to the Public Access to Court Electronic Records (PACER), bankruptcy filings are available online at If an employer does not have access to PACER, an employer can obtain information about bankruptcy filings directly from the United States Bankruptcy Court for the District of New Mexico, (505) 348-2500.

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