Keathley v. Buddy Ayers Construction.
Supreme Court rejects "stringent test" for judicial estoppel in bankruptcy cases
By David R. Kuney
On June 11, 2026, the Supreme Court handed down its decision in Keathley v. Buddy Ayers Construction Inc. (Case No. 25-6). The decision was 9-0, reversing the Fifth Circuit which had applied the doctrine of judicial estoppel in a Chapter 13 bankruptcy case to bar a debtor from pursuing a tort claim because his bankruptcy schedules had initially omitted to list the claim. A copy of the decision is attached. See decision.
The ABI’s leading daily columnist, Bill Rochelle, has suggested that the Supreme Court “may have killed judicial estoppel in bankruptcy and everywhere.” Given this possibility, the decision and its factual background deserve close attention.[1] Hopefully, the decision will preclude aggressive creditors from ambushing chapter 13 debtors who are confounded by the unduly complex Chapter 13 schedules and claiming they were misled. But, further, the Keathley case highlights the importance of the amicus brief in bankruptcy appeals and the critical role of former judges (and law professors) who lend their voice and wisdom to the outcome. See my prior Substack, On the Balcony. And, it showcases the vital work of the American Bankruptcy Institute in publishing reports and studies which contain thoughtful and rigorous analysis of issues that can be highly beneficial to the Supreme Court.
The facts in Keathley well illustrate the inequity of using a Chapter 13 debtor’s bankruptcy schedules as a tool to seek a windfall or inequitable outcome. (Our amicus brief deals at length with this issue of the schedules’ complexity; see below). In this case, Keathley was in his fourth year of a five year Chapter 13 plan that paid his creditors 100%, (without interest) when he was hit by a truck driven by Buddy Ayers. He was badly injured. Keathley sued Ayers in a federal district court, but neglected at first to file an amended schedule in his bankruptcy proceeding listing the claim. After Keathley amended his schedules, no creditor sought to amend the plan and the bankruptcy court imposed no sanction for the delay in listing the claim. On Ayers’ motion, the district court dismissed the tort claim based on judicial estoppel; according to the court, Keathley’s failure to list the claim in his bankruptcy was inconsistent with his assertion of the claim in another court, even though Keathley had by then corrected his schedules to list the claim. Keathley appealed to the Fifth Circuit.
The Fifth Circuit’s stringent standard for judicial estoppel.
The Fifth Circuit handed down its per curiam decision on March 3, 2025. Keathley v. Buddy Ayers Construction Inc., No. 24-60025. 2025 WL 673434 (5th Cir. 2025).
In considering judicial estoppel for bankruptcy cases, the Fifth Circuit held that a debtor’s failure to satisfy its statutory disclosure duty is inadvertent only when, in general, the debtor either lacks knowledge of the undisclosed claims or has no motive for their concealment.” Id. at *5. Pet. App. 12a-13a.[2] “As an initial matter, this court has held that ‘the controlling inquiry, with respect to inadvertence, is the knowing of facts giving rise to inconsistent positions.” Id. at * 5. Nailing the coffin shut, the Fifth Circuit concluded that “the motivation sub-element is almost always met if a debtor fails to disclose a claim or possible claim. Id. “Thus, we agree with the district court that Keathley stood to potentially benefit by concealing his personal injury case from the bankruptcy court.” Id. at *5. Because Keathley knew of his tort claim, he “cannot show that his failure to disclose his personal injury lawsuit was inadvertent.” Id.
Judge Haynes concurred in the result but criticized the application of the doctrine in this context. 2025 WL 673434 at * 7. “Here there was evidence that Keathley’s failure to disclose the personal injury was an honest mistake.” Id. at 8 (emphasis added). “Without citing to any evidence of an actual financial benefit that Keathley received, the defendant argued that his motive for concealment was ‘self-evident under Fifth Circuit precedent.’” Id. “This hypothetical motive was enough; the district court granted the motion, citing this circuit’s ‘stringent application of the judicial estoppel rules.’” Id. (emphasis added).
Keathley’s appeal to the Supreme Court
On June 27, 2025, Keathley filed his petition for a writ of certiorari. Cert petition. In his petition, he described the question presented as follows:
“The question presented in this appeal was whether the doctrine of judicial estoppel can be invoked to bar a debtor who fails to disclose a civil claim in a bankruptcy proceeding from pursuing that claim based only on a showing of a potentialmotive for nondisclosure of a claim, regardless of whether there is evidence that the plaintiff in fact acted in bad faith. Cert. Pet. i.
Further elaborating, Mr. Keathley’s opening brief stated:
The question in this case is what happens when a [chapter 13] debtor pursues an action against someone outside of bankruptcy but neglects to timely advise the bankruptcy court of his claim. In that situation, courts may invoke the doctrine of judicial estoppel to bar the suit—but only if they conclude that the debtor-plaintiff sought to mislead the bankruptcy court. That limitation reflects the doctrine’s core purpose: Judicial estoppel exists to prevent—and penalize—“deliberate[]” gamesmanship, but not to punish “inadvertence or mistake.” New Hampshire v. Maine, 532 U.S. 742, 749-50, 753 (2001).”
Brief for Petitioner, 1-2. The brief is attached here. Opening brief
The legal standard for judicial estoppel. New Hampshire v. Maine
As noted, Keathley’s cert petition relied in part on the Supreme Court’s only prior case on judicial estoppel—New Hampshire v. Maine, 532 U.S. 742 (2001)—where the Supreme Court held that judicial estoppel may not be applied where the alleged inconsistency was the result of “inadvertence or mistake.”
[W]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him. This rule, known as judicial estoppel, “generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase. 532 U.S. 742, 749.
The Court noted that “[t]he circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle,” but that several factors typically inform the decision whether to apply the doctrine in a particular case. 532 U.S. 742, 750. These factors include whether the party’s later position was “clearly inconsistent” with its earlier position, whether the party has succeeded in persuading a court to accept the earlier position, and whether the party would derive an unfair advantage over the opposing party if he is not estopped. 532 U.S. 750-51.
To this general statement, the Court added the following critical qualification: “We do not question that it may be appropriate to resist application of judicial estoppel when a party’s prior position was based on inadvertence or mistake.” 532 U.S. 742, 753.
The role of the amicus brief and the ABI Commission on Consumer Bankruptcy
Mr. Keathley’s cert petition was supported by an amicus brief I authored on behalf of former bankruptcy judges Melanie Cyganowski, Joan Feeney, Judith Fitzgerald, Bruce Markell, Eugene Wedoff, and Professor Robert M. Lawless, a highly regarded legal scholar on consumer bankruptcy law and a Reporter for the ABI Commission on Consumer Bankruptcy Law. See Judges’ amicus brief and the ABI Consumer Comm. Rpt.
A key goal of the amicus brief was to bring to the Court’s attention the findings set forth in the ABI Commission on Consumer Bankruptcy.[3] The ABI Commission Report was a multi-year study by leading judges and scholars in the bankruptcy community, including Professor Lawless and former Judges Wedoff and Markell. The Commission Report rejected the mechanical approach and recommended a standard consistent with the “totality of the circumstances” set forth in Slater v. United States Steel Corp., 871 F.3d 1174 (11th Cir). The Commission Report stated that “a debtor’s failure to disclose a cause of action is not alone grounds to apply judicial estoppel,” and that a court should consider the “totality of the circumstances.” ABI Comm. Rpt., 28. “The relevant inquiry should be about the debtor’s intent toward other parties. . . .” Id.
The amicus brief argued that given the complexity and difficulty of completing the schedules in a Chapter 13 case, the likelihood of inadvertence or mistake was high:
A chapter 13 case is commenced by the filing of a voluntary petition for individuals (Official Form 101), which includes Official Form 106E/F: creditors who have unsecured claims. These standardized form consist of 46 highly detailed pages, including calculation of income and expense and the calculation of the “commitment period” during which the debtors are required to make payments to creditors. See Official Form 122C-1, ECF 1, p. 36.[4]
These forms and schedules are complex and even with counsel, are frequently misunderstood. The ABI Comm. Rpt. “reflects the reality that a consumer faces before a bankruptcy filing. . . . Even with the aid of an attorney, a consumer has a huge task to assemble the information to complete these forms. Moreover, a consumer might not appreciate that a potential lawsuit is an asset in the same way as a house or bank account.” Id. at 29.
This brief was part of my pro bono bankruptcy amicus practice, which mostly includes filing amicus briefs on behalf of former bankruptcy judges and leading academic scholars. You can see my briefs at https://www.bankruptcyadvocacy.net
This amicus brief was cited several times at oral argument to support the view that the chapter 13 forms are complex, and that a debtor might not have understood that a tort claim is an asset that requires amending schedules, especially before there is a verdict.
Oral argument: Does New Hampshire apply in the context of a bankruptcy case?
The case was argued on March 24, 2026, by Gregory G. Garre, a partner at Latham and Watkins, and a former U.S. Solicitor General, as well as Frederick Liu, Assistant to the Solicitor General, for the petitioner and William M. Jay, for the respondents.
Much of the oral argument with Mr. Garre focused on whether the Court’s only precedent, New Hampshire, could be applied in the bankruptcy context, or whether the Court should simply rule that the Fifth Circuit had deviated from New Hampshire and thus remand it with instructions to apply the correct legal standard.
At oral argument Justice Gorsuch observed that the Fifth Circuit, by adding a “gloss” to New Hampshire, essentially followed a different rule. Oral arg. 32.[5] Justice Gorsuch asked Mr. Garre if he would “be content” with a ruling that said “inadvertence and mistake” is not a basis for judicial estoppel.
The Fifth Circuit glossed that rule with one of its own, a bright line rule that it’s never inadvertence and mistake when there’s a knowing omission and there’s a motive. Would it be enough to simply say we don’t need a further gloss on inadvertence and mistake, this is an equitable doctrine, go back and do it again, looking to what we said.” Oral arg. 31-32.
No other member of the Court appeared to take issue with Justice Gorsuch during oral argument.
Justice Sotomayor signaled her concern about applying New Hampshire in the context of an on-going bankruptcy case. “It should be the bankruptcy court that decides whether to impose a penalty because doing away with the personal injury suit deprives the creditors of a potential source of income for the bankruptcy.” “[T]hat’s a draconian effect.” Oral arg. 14.
Chief Justice Roberts suggested that the “primary basis” for the doctrine was the “impact on the judiciary, the judicial reputation. . .” Oral arg. 7. “You don’t want to put the courts in the position of acting on the basis of a counterfactual position that’s not true.” Significantly, Justice Sotomayor noted that the court’s integrity is undermined where parties seek to reap a windfall. This emphasis on “windfall” means courts need to look at the merits of the party seeking to use the doctrine, and not just the party who made the inconsistent statement.
Justice Kagan also noted suggested that “inadvertence” may not be dispositive, and that the key focus should be on “protecting the integrity of the courts, and that this question of intentionality may coincide with that principal purpose but in certain cases may not.” Oral arg. 45.
Supreme Court reverses the Fifth Circuit.
Justice Jackson wrote for the majority. The Court rejected the approach of the Fifth Circuit which had held that the omission of a statement in a bankruptcy case will only be considered inadvertent or a mistake in only two circumstances: (1) when the debtor was unaware of the underlying facts of his claim, or (2) when there was no hypothetical motive to conceal the claim. Slip op. 2.
The Court noted that the rule in New Hampshire has never been applied in the bankruptcy context.” Slip op. 7. The Court went to say, “For purposes of this opinion, we assume without deciding that judicial estoppel can apply in the bankruptcy context, and that “inadvertence or mistake” can function as an exception to that application.” Slip op. 7
The Court rejected the Fifth Circuit’s bright line test that a failure to disclose a claim “almost always” shows an improper intent to mislead the court. The Fifth Circuit’s rule allowed a court to consider only two circumstances when assessing inadvertence of mistake: “That rigidity is out of step with equity.” Slip op. 8. The Fifth Circuit’s rule was not only overly rigid, it was overly broad. Id. This because the decision was a “one-size-fits-all test and would require courts to view as purposeful (and not inadvertent) “nearly every bankruptcy omission.” Id. at 8.
The Court also emphasized that the doctrine is equitable in nature, and that the correct approach is a “case-by-case” analysis considering all relevant facts and circumstances. Slip op. 7. As Chief Justice Roberts noted at oral argument, “It does seem. . . a little much that the one person who’s getting off is the one who—whose truck hit the other guy, right.” Oral arg. 58.
The Court was also concerned about the finding of judicial estoppel being made by a court other than the court to whom the purportedly inconsistent statement was made.
Justice Thomas, joined by Justice Gorsuch wrote a concurring opinion. “I write separately to express doubt about the foundation of the doctrine of judicial estoppel. . . In future cases we should reexamine it.” Slip op., 1. Significantly he wrote that the doctrine of judicial estoppel reaches much further than the older doctrines of equitable estoppel. “Despite the widespread modern adoption of judicial estoppel, its foundation remains questionable. . . the doctrine appears to have no basis in any statute, any Federal Rule of Civil Procedure, or any traditional inherent power of federal courts. . . In a future case, this doctrine merits a closer look.” Slip op. 3 and 6.
Justice Sotomayor wrote a separate concurrence. “I write to address why it may not ever make sense to apply judicial estoppel when bankruptcy proceedings are pending, and why, in any context, judicial estoppel should always turn on the totality of the circumstances.” Slip op. 1 (Sotomayor, J., concurring). “It is difficult to see how using judicial estoppel to bar the debtor from pursuing a separate claim which only harms creditors, is either needed or wanted.” Id. at 3. Further, the doctrine “undermines the integrity of both court systems when it becomes a ‘tool in the arsenal of potentially bad actors to reap a windfall” and secure that advantage at creditors’ detriment.” Id. at 4.
What does the decision mean: the asymmetry of consumer and commercial bankruptcy
Bill Rochelle’s comment that the Supreme Cort may have killed judicial estoppel in bankruptcy tracks in spirit much of the concurrence of Justices Thomas and Sotomayor--especially in the context of a consumer bankruptcy. Chapter 13 schedules are complex and difficult, as made clear by the ABI Commission Report. Further, the Chapter 13 discharge is contingent on performance of a plan that can cover five years or more. The notion that every change in a debtor’s assets or claims during a five year period must result in an immediate amendment to the schedules seems unrealistic. Aggressive creditors can readily find “inconsistencies.” And Justice Sotomayor’s observations that applying the doctrine is highly questionable while the case is still open could further weaken or doom the doctrine.
Lastly, the harshness of the Fifth Circuit’s decision in this context of a consumer bankruptcy case reflects the asymmetry of consumer cases compared to commercial cases. Cases such as Purdue Pharma illustrate that the debtor’s alleged malfeasance, even on a national scale, can still lead to efforts to obtain a complete discharge, even for non-debtor third parties. But woe unto a consumer who delays in amending a schedule, and then is faced with a motion to dismiss a potentially valid claim for omitting the claim from his schedules.
Please see my website with a list of prior amicus briefs.
https://www.bankruptcyadvocacy.net
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[1] William Rochelle, Supreme Court May Have Killed Judicial Estoppel in Bankruptcy and Everywhere Else, ABI Bankruptcy Brief, June 11, 2026.
[2] References to the Petitioner’s appendix (Pet. App.) refer to the appendix filed in the Supreme Court with the petition for certiorari. A copy of the appendix is available on the Court’s website.
[3] Final Report of the abi commission on Consumer Bankruptcy (2017-2019).The report is available at https://consumercommission.abi.org/
[4] All references to “ECF” pertain to the Keathley’s bankruptcy case filed in the eastern district of Arkansas, Case no. 2:19-bk-16848.
[5] References to the oral argument (Oral. Arg.) refer to the argument before the Supreme Court on March 24, 2026. A copy of the transcript is available on the Court’s website.