U.S. Supreme Court Bankruptcy Roundup in Brief
On June 11, 2026, a unanimous U.S. Supreme Court reversed a March 2025 ruling by the U.S. Court of Appeals for the Fifth Circuit regarding a legal doctrine—"judicial estoppel"—designed to prevent unfair litigation advantages resulting from a litigant's failure to disclose information either intentionally or inadvertently.
In Keathley v. Buddy Ayers Construction Inc., No. 25-6, 2026 WL 1686028 (U.S. June 11, 2026), the Court overturned the Fifth Circuit's decision judicially estopping a chapter 13 debtor from asserting a personal injury claim against a construction company because the debtor failed to disclose the claim during his bankruptcy case. In so ruling, the Court held that "[t]he Fifth Circuit erred by artificially narrowing its inquiry to whether the debtor had knowledge of the underlying facts or a potential motive to conceal the claim." It represents the first time that the Court has applied judicial estoppel in the bankruptcy context, although it has suggested in other contexts that it may be inappropriate where an inconsistent legal position resulted from "inadvertence or mistake."
Judicial Estoppel
The common law doctrine of judicial estoppel prevents a litigant from taking a position contrary to one that it took in an earlier legal proceeding. See Alt. Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23,33 (1st Cir. 2004). It is designed to prevent parties from obtaining unfair advantage over opposing litigants in subsequent court proceedings. In essence, "[t]he doctrine's primary utility is to safeguard the integrity of the courts by preventing parties from improperly manipulating the machinery of the judicial system." Id. at 33.
Lower appellate courts regularly apply judicial estoppel in cases where a debtor-plaintiff pursues a cause of action that the debtor failed to disclose during the course of a bankruptcy case. The Fourth, Sixth, Seventh, Ninth, and Eleventh Circuits require courts to look at the totality of the circumstances and conclude that the debtor subjectively intended to mislead the bankruptcy court before applying judicial estoppel to bar a claim asserted outside of the bankruptcy case. See Martineau v. Wier, 934 F.3d 385 (4th Cir. 2019); Stanley v. FCA US, LLC, 51 F.4th 215, 219 (6th Cir. 2022; Spaine v. Community Contacts, Inc., 756 F.3d 542 (7th Cir. 2014); Ah Quin v. County of Kauai Department of Transportation, 733 F.3d 267 (9th Cir. 2013); Slater v. United States Steel Corp., 820 F.3d 1193 (11th Cir. 2016).
By contrast, the Fifth and Tenth Circuits apply what has been characterized as a "rigid," "harsh," or "unforgiving" judicial estoppel rule in the bankruptcy context, barring claims whether or not evidence shows that the debtor-plaintiff actually intended to mislead the court. See In re Coastal Plains, Inc., 179 F.3d 197 (5th Cir. 1999); Eastman v. Union Pac. Ry. Co., 493 F.3d 1151 (10th Cir. 2007). In those circuits, a debtor's failure to disclose a cause of action to the bankruptcy court triggers judicial estoppel whenever the debtor knew the facts relevant to the undisclosed claim and had a potential motive for concealment.
Ayers Construction
In 2019, an individual debtor and his wife (collectively, the "debtor") filed a chapter 13 case in the Eastern District of Arkansas. In 2020, the bankruptcy court confirmed a wage-earner plan that, as modified several times, provided for 100% payment to unsecured creditors.
In August 2021 (during the payment period for the chapter 13 plan), the debtor was injured in a construction accident involving an automobile driven by him and a vehicle driven by a construction company employee. The debtor then retained a lawyer to pursue a personal injury claim against the construction company.
The debtor informed his bankruptcy lawyer about the accident, but his counsel did not inform the court or amend the debtor's bankruptcy schedules to disclose the claim—which was property of his bankruptcy estate pursuant to section 1306 of the Bankruptcy Code. His bankruptcy lawyer later filed an amended chapter 13 plan but failed to disclose the personal injury claim. In 2021, the debtor sued the construction company over the accident in the U.S. District Court for the Northern District of Mississippi.
The debtor also filed and settled a worker's compensation claim against his employer in December 2022 based upon injuries caused by the accident but did not disclose the settlement to the bankruptcy court.
The debtor did not disclose the personal injury claim as an asset to the bankruptcy court until March 2023, after the construction company raised the judicial estoppel as a defense in the Mississippi district court litigation. In April 2023, the debtor amended his bankruptcy schedules to add the personal injury claim as property of his bankruptcy estate.
In August 2023, finding that the debtor's failure to disclose the personal injury claim in the chapter 13 case was not inadvertent, the district court granted the construction company's motion for summary judgment and dismissed the case on the basis of judicial estoppel.
The debtor appealed the district court's ruling to the Fifth Circuit, which affirmed the decision in a nonprecedential opinion. See Keathley v. Buddy Ayers Construction Inc., 24-60025, 2025 WL 673434 (5th Cir. March 3, 2025), vacated and remanded, No. 25-6, 2026 WL 1686028 (U.S. June 11, 2026). According to the Fifth Circuit, the debtor should be judicially estopped from prosecuting the personal injury claim because the debtor had a potential motive to conceal its existence. One of the circuit judges concurred in the judgment, but "only because it is based upon our precedent." The concurring judge suggested that it would be "best to defer to the bankruptcy court's evaluation regarding whether the plaintiff should be allowed to proceed." She further noted that she "would have dissented if we did not have prior precedents." Id. at **7–9 (concurring opinion).
The Supreme Court agreed to review the Fifth Circuit's ruling to resolve the circuit split regarding the application of judicial estoppel in bankruptcy cases. In particular, the Court considered "[w]hether 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."
The Supreme Court's Ruling
A unanimous Court vacated and remanded the Fifth Circuit's decision.
Writing for the Court, Justice Ketanji Brown Jackson explained that, although the Court has never applied the doctrine of judicial estoppel in a bankruptcy case, "in a different context we left open whether it 'may be appropriate to resist application of judicial estoppel' when the party's prior inconsistent position was due to 'inadvertence or mistake.'" Ayers Construction, 2026 WL 1686028, at *4 (citation omitted). She also wrote that, "[f]or the 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." Id.
According to the Court, the Fifth Circuit's construction of "inadvertence or mistake" is "simultaneously too rigid and too broad." It is too rigid, Justice Jackson noted, because the Fifth Circuit failed to recognize fully that judicial estoppel is an equitable doctrine that cannot be applied mechanically but, rather, according to recognized and flexible equitable principles applied on a case-by-case basis considering all relevant facts and circumstances. Id. at *5. The Fifth Circuit's approach, she emphasized, permits courts to consider only two things when assessing inadvertence or mistake—i.e., "whether the debtor knew of the underlying facts of the claim, and whether there was a potential motive to conceal the claim." Id. Justice Jackson noted that the rigidity preventing a court from considering any other evidence suggesting that an omission was inadvertent "is out of step with equity."
The Court also concluded that the Fifth Circuit's approach is overly broad because it means that an "omission falls outside of the exception any time a debtor knows certain facts or could potentially benefit from non-disclosure of a claim"—which is unavoidable in bankruptcy, where a debtor "will almost always hypothetically benefit from not revealing such a claim to his creditors." Id.
Harshly critical of the Fifth Circuit's "one-size-fits-all test that requires courts to view as purposeful nearly every bankruptcy omission," the Court wrote:
The overbreadth of the Fifth Circuit's rule (the fact that it almost always is satisfied) makes it patently incompatible with an inadvertence-or-mistake standard, which suggests that circumstances—and outcomes—may vary. A near-dispositive criterion is a poor fit for a fair inquiry into whether an omission is actually the result of inadvertence or mistake.
Id.
Justices Thomas and Sotomayor filed separate concurring opinions and Justice Gorsuch joined Justice Thomas's concurrence. Justices Thomas and Gorsuch agreed with the result but stated that the doctrine of judicial estoppel has been applied broadly by lower courts without any clear authority and with only limited support from Supreme Court precedent. Justice Sotomayor queried whether "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." Id. at **6–8 (concurring opinions).
Noteworthy Denials of Certiorari
- On June 1, 2026, the Court declined to review a decision by the U.S. Court of Appeals for the Fourth Circuit in Official Comm. of Asbestos Claimants of Bestwall LLC v. Bestwall LLC, 148 F.4th 233 (4th Circ. 2025), reh'g denied, 157 F.4th 579 (4th Cir. 2025), cert. denied, 2026 WL 1513280 (U.S. June 1, 2026). In that case, the Fourth Circuit, reasoning that a debtor's financial status has no bearing on whether a bankruptcy court has jurisdiction over its case, held that Georgia-Pacific asbestos unit Bestwall LLC could remain in chapter 11. In its petition for a writ of certiorari, the Bestwall official asbestos claimant committee argued that Bestwall's "Texas two-step" divisional merger cases were filed in bad faith because Bestwall, which was being funded by a solvent parent corporation, was not in financial distress.
Jones Day represents Bestwall in the chapter 11 case.
- On June 29, 2026, the Court denied a petition to review a 2025 decision by the U.S. Court of Appeals for the Third Circuit in Yellow Corp. v. Central States, Southeast and Southwest Area Pension Funds, 152 F.4th 491 (3d Cir. 2025), cert. denied, No. 25-986 (U.S. June 29, 2026), affirming lower court rulings imposing billions of dollars in retirement fund withdrawal liability on chapter 11 debtor trucking company Yellow Corp. In its petition for a writ of certiorari, the debtor argued that the Pension Benefit Guaranty Corporation overstepped its authority when it issued two regulations limiting how funds paid to pension plans under the COVID-era 2021 American Rescue Plan Act offset employer withdrawal calculations.
- Also on June 29, 2026, the Court declined to review a decision by the U.S. Court of Appeals for the Fifth Circuit in NexPoint Asset Mgmt., L.P. v. Highland Capital Mgmt., L.P. (In re Highland Capital Mgmt., L.P.), 132 F.4th 353 (5th Cir. 2025), cert. denied and stay vacated, 2025 WL 1621149 (June 9, 2025), cert. denied, No. 25-119 (U.S. June 29, 2026). In that case, the Fifth Circuit ruled that a bankruptcy court, on remand from a previous Fifth Circuit decision, should have narrowed the scope of liability releases and a "gatekeeping" provision in a chapter 11 plan for a Texas investment fund.
