Keathley v. Buddy Ayers Construction: The Cost of Bankruptcy Nondisclosure

In August 2021, Thomas Keathley was seriously injured in a car collision in Mississippi. He sued the driver’s employer, Buddy Ayers Construction (BAC) for negligence. But Keathley never saw his day in court—not because he lacked evidence, but because he had failed to disclose the pending lawsuit in his Chapter 13 bankruptcy proceedings, a process in which individual debtors propose a three-to-five-year plan to repay creditors while retaining their property under court supervision. The Fifth Circuit dismissed his case entirely under the doctrine of judicial estoppel, and the Supreme Court granted certiorari in Fall 2025 upon Keathley’s appeal. The question now before the Court could reshape how strictly federal courts police the intersection of bankruptcy disclosure duties and substantive litigation rights.

Judicial estoppel prevents parties from taking contradictory positions in legal proceedings to protect the integrity of the courts. The Supreme Court articulated the modern test in* New Hampshire v. Maine (2001*), establishing that courts typically consider three factors: (1) whether the party asserted inconsistent positions, (2) whether a court accepted the prior position, and (3) whether the party’s inconsistency was not the result of inadvertence, meaning the party understood the underlying facts and did not make an innocent mistake. If all three elements are satisfied, a court will bar the litigant from adopting the later position and prevent them from benefiting from the contradiction. In bankruptcy, debtors have a continuing duty to disclose all assets, including contingent claims such as pending lawsuits. By not disclosing his personal-injury suit across three amended bankruptcy plans filed after the collision, Keathley “impliedly represented” he had no such claim.

The Fifth Circuit found all three elements satisfied. First, Keathley’s silence across multiple filings conflicted with his later assertion of the claim. Second, the bankruptcy court approved his modified plan without ever learning of the lawsuit, which meant neither the court nor his creditors had an opportunity to reassess the Plan’s feasibility or treatment of assets. Third, and most importantly, the court rejected any suggestion of inadvertence: Keathley knew of the lawsuit, and the Fifth Circuit treats knowledge of underlying facts as sufficient even if the debtor lacked awareness of a legal duty. Moreover, the panel emphasized that Keathley had filed for bankruptcy on three prior occasions (2001, 2003, 2015), underscoring his familiarity with the process and the inference of motive to conceal a lawsuit that might have disrupted his interest-free repayment plan.

Keathley’s motion to reconsider was filed in the Fifth Circuit, asking the panel to revisit its earlier dismissal under judicial estoppel. In support, he submitted an affidavit from a staff attorney in the bankruptcy trustee’s office, stating that delayed disclosure of pending claims “is not uncommon” in Arkansas bankruptcy practice until a settlement becomes imminent. The Fifth Circuit seized on that statement: if the practice were widespread, the court reasoned, it suggested that Keathley’s nondisclosure was a deliberate pattern rather than an innocent oversight: the opposite of what he intended to prove. This exchange became the climactic moment in the litigation, crystallizing the key question now before the Supreme Court: whether inadvertence under judicial estoppel should be judged by a debtor’s subjective good faith or by an objective inference of intent drawn from the record.

But Fifth Circuit Judge Haynes, who concurred in the court’s decision, exposed a doctrinal fault line that likely prompted Supreme Court review. He noted that other circuits (the First, Seventh, Ninth, and Eleventh) apply judicial estoppel more flexibly, requiring either prejudice to the bankruptcy estate or a finding of actual bad faith. These circuits ask: who actually benefits from the estoppel? Here, BAC had no connection to Keathley’s bankruptcy. It never relied on any representation he made to the bankruptcy court, yet it receives a complete escape from potential tort liability, while Keathley loses his claim entirely.

The Fifth Circuit treats the doctrine as a strict rule meant to protect the integrity of the bankruptcy process by deterring nondisclosure, regardless of context. Haynes and other circuits view it as an equitable doctrine, one that should preserve fairness among all parties rather than punish debtors automatically. Judge Haynes argued that when a district court sits in a different circuit from the bankruptcy court, as in this case where a Mississippi federal court was reviewing Arkansas bankruptcy proceedings, it should defer to the bankruptcy court in determining appropriate remedies. The bankruptcy court could impose fines, modify repayment plans, or sanction counsel for noncompliance. Allowing an unrelated tort defendant to escape liability based on a disclosure error converts a procedural violation into a windfall.

This divide exposes a structural problem. The Fifth Circuit’s approach ensures consistency but sacrifices proportionality. A rule that automatically bars claims after nondisclosure may prevent fraud, but it eliminates any opportunity to weigh the debtor’s good faith, the role of legal counsel, or the absence of harm to creditors. In Keathley's case, the bankruptcy estate suffered no demonstrated loss, yet the sanction was total forfeiture of his unrelated tort claim.

The Supreme Court must therefore decide whether judicial estoppel in bankruptcy should require four limiting principles. First, a showing of prejudice to the bankruptcy estate: evidence that creditors were materially disadvantaged by the omission. Second, proportionality between the disclosure violation and the remedy imposed, ensuring that minor or corrected omissions do not lead to total claim loss. Third, recognition of third-party windfalls, where unrelated defendants exploit a debtor’s technical misstep to avoid liability. Fourth, a more contextual definition of inadvertence that distinguishes deliberate concealment from negligence or confusion, especially in Chapter 13 cases where filings are complex and protracted.

The Fifth Circuit’s rule may appear administratively efficient, but it risks transforming equity into inflexibility. Keathley’s case illustrates that tension: a debtor who is repaying creditors loses an unrelated legal right, while a tortfeasor escapes accountability entirely. The Supreme Court’s decision will determine whether judicial estoppel remains a categorical bar or evolves into a more balanced doctrine that safeguards both the integrity of the courts and the fairness of outcomes for debtors.