Keathley v. Buddy Ayers Construction, Inc. and the Effect of a Failure to Disclose in Bankruptcy

I. What You Need to Know

Judicial estoppel is an equitable doctrine that prevents parties from taking inconsistent positions in different cases. This is best illustrated by example. If a defendant is sued over a dog attack, and successfully defends by asserting that the dog is not theirs, they cannot subsequently file a lawsuit alleging that the same dog has been stolen by their neighbor.¹ The doctrine prevents a litigant from benefitting from intentionally inconsistent positions. But when is an inconsistency intentional, as opposed to accidental or inadvertent? In Keathley v. Buddy Ayers Construction, the Supreme Court addressed a bankrupt debtor who did not list a personal injury claim as an asset in his bankruptcy proceedings, then pursued that claim in another court. This fact pattern is a relatively common one for invoking the doctrine, and the debtor often claims inadvertence. Resolving a circuit split, the Supreme Court held that the application of judicial estoppel in the bankruptcy context must be predicated on the totality of the circumstances surrounding the omission, not a rigid rule like the Fifth and Tenth Circuits had applied. In addition, the Court signaled hesitations about the applicability of judicial estoppel in bankruptcy at all.

II. Factual and Procedural Background²

Thomas Keathley filed for chapter 13 protection in late-2019 in the Bankruptcy Court for the Eastern District of Arkansas (the “Bankruptcy Court”). Keathley filed a chapter 13 plan in March 2020, which was confirmed by the Bankruptcy Court the following month.

Sixteen months later, but still governed by his chapter 13 plan, Keathley was in an automobile accident with an employee of Buddy Ayers Construction (“Buddy Ayers”). This accident led him to retain a personal injury lawyer and file suit against Buddy Ayers in the Northern District of Mississippi (the “District Court”). Critically, he failed to disclose this lawsuit to the Bankruptcy Court at that time, or in any of the three amended plans he filed in March and June of 2022.³

Buddy Ayers moved for summary judgment in the District Court’s personal injury case on the grounds of judicial estoppel, citing Keathley’s failure to abide by his ongoing obligation to disclose all assets in the Bankruptcy Court—including contingent and unliquidated claims as well as those arising after the bankruptcy was commenced.⁴ More simply, Buddy Ayers argued that Keathley cannot submit to the Bankruptcy Court that he has no unliquidated claims, then file such a claim in the District Court.

The District Court agreed with Buddy Ayers, dismissing the personal injury claim on judicial estoppel grounds—a result that was appealed to the Fifth Circuit Court of Appeals by Keathley. On appeal, the Fifth Circuit affirmed the District Court’s dismissal through a strict application of the Circuit’s judicial estoppel jurisprudence. In the Fifth Circuit, inadvertence was not found unless the debtor did not know of the claim or had no motive to conceal it. That hurdle was rarely cleared. However, a concurring opinion by Judge Haynes noted that the Fifth Circuit’s precedent on judicial estoppel is particularly rigid relative to other circuits’ “more holistic” approaches.

The Supreme Court granted certiorari and arguments were heard March 24, 2026.

III. Judicial Estoppel and a Failure to Disclose

The doctrine of judicial estoppel protects the integrity of the judicial system by preventing parties from “deliberately changing positions according to the exigencies of the moment”⁵ However, the term “deliberately” has proven to be the operative issue in Keathley and many other cases.

In the years leading up to Keathley, the Supreme Court was clear that judicial estoppel should not be applied “when a party’s prior position was based on inadvertence or mistake.”⁶ The critical division between the federal circuit courts was how much evidence is required to imply a lack of mistake or inadvertence. In the Keathley case, the Fifth Circuit—consistent with its existing precedent—applied an inference that the omission was not inadvertent unless the debtor lacked knowledge of the undisclosed claims or lacked motive for their concealment.⁷ Given Keathley’s knowledge of the claims, and his potential financial gain of failing to list such claims in his bankruptcy case, the Fifth Circuit determined that the omission was sufficient grounds for judicial estoppel. This approach is similar to that of the Tenth Circuit.⁸ Other circuits, namely the Fourth,⁹ Sixth,¹⁰ Seventh,¹¹ Ninth,¹² and Eleventh¹³ Circuits, required a holistic inquiry into the subjective intent of the debtor to determine whether the omission was mistaken or inadvertent.

IV. The Supreme Court Ruled That a Holistic Review is Required¹⁴

In Keathley, the Supreme Court addressed the concept of judicial estoppel in the bankruptcy context for the first time. In a concise, unanimous opinion, Justice Jackson assumed without deciding that the doctrine of judicial estoppel applies in the bankruptcy context and that mistake and inadvertence is an exception to its application. The opinion then went on to conclude that, under those assumptions, the Fifth Circuit’s rule was too rigid. Instead, the determination whether an omission was mistaken or inadvertent must turn on the totality of the circumstances, consistent with the doctrine’s application in other circuits. The Court also noted that, while the Fifth Circuit’s application was too rigid, it was also overly broad, as debtors will almost always have a hypothetical motive to conceal a cause of action in bankruptcy court.

An unexpected aspect of the opinion was the Court’s hesitation about the application of judicial estoppel in general. As noted above, the Court “assumed without deciding” that the doctrine was applicable in bankruptcy, as opposed to merely applying the doctrine. The Court’s hedge on this issue is slightly surprising given the consistent application of judicial estoppel in bankruptcy cases nationwide. Justice Thomas and Justice Sotomayor each filed concurring opinions raising questions about applying the doctrine in this case, as well. In his opinion, Justice Thomas, joined by Justice Gorsuch, suggested a lack of foundation for the concept of judicial estoppel in any instance, and urged the Court to reconsider the doctrine as a whole in a future case. In her decision, Justice Sotomayor argued that bankruptcy courts have ample tools (sanctions, plan modification, conversion to Chapter 7) to address nondisclosure without barring the tort claim entirely.

V. Key Takeaways

Under chapters 7 and 11, debtors are required to list causes of action that they may have, much like Keathley did in his chapter 13 case. While this case involved a post-confirmation cause of action belonging to a chapter 13 debtor, courts apply judicial estoppel consistently in chapter 7 and 11 proceedings. Accordingly, this decision should also offer all practitioners—not just those who represent chapter 13 debtors—a reminder of the stakes of judicial estoppel. In the Fifth Circuit proceedings, an attorney signed an affidavit noting that it is common practice for bankruptcy attorneys in Arkansas not to list personal injury causes of action until they are liquidated. Such a practice risks the loss of a tort claim.

Practitioners should also be mindful of the moral hazard this decision may create. By adopting a totality of the circumstances standard, the Court has arguably made it more difficult for defendants to invoke judicial estoppel in cases where a debtor’s omission of a claim was plausibly inadvertent. This could, in turn, reduce the deterrent effect of the doctrine and create a risk that some debtors may be less diligent in disclosing post-petition claims—reasoning that any omission can later be characterized as a mistake. While the Court’s holding is grounded in sound equitable principles, practitioners should be aware of this dynamic and counsel clients to maintain rigorous disclosure practices to avoid any appearance of gamesmanship, which could weigh against them in the totality-of-the-circumstances analysis.

Finally, the Court’s hesitations regarding the application of judicial estoppel in the bankruptcy context generally should urge practitioners to keep a careful eye on this issue going forward as, undoubtedly, lower courts will pick up on this ambivalence and potentially curb their use of the doctrine in the bankruptcy context.