Raina Kehaunani Castillo

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Date Signed:

November 21, 2025 SO ORDERED.

Livi,

Robert J. Faris
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
DISTRICT OF HAWAII
In re: Case No.: 25-00837
Chapter 13

RAINA KEHAUNANI CASTILLO,

Debtor. Related: ECF 2

ORDER REGARDING
“CONSUMER CLAIMS” PLAN PROVISION

The chapter 13 debtor has included the following special provision in
his plan: “Debtor may have consumer claims, the existence and value of
which are currently unknown and/or uncertain. To the extent the value of
these claims becomes recoverable and exceeds the value of Debtor’s

exemptions, such assets will be contributed into the plan.”

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INFORMATION

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The chapter 13 trustee “objects that this provision appears to allow
Debtors to pursue claims against third parties without informing the court,
trustee or creditors until a time at their discretion.”
I agree with the trustee that the plan is not confirmable with this
provision.
All debtors in bankruptcy cases must disclose all of their property
and debts by filing schedules of assets and liabilities. § 521(a)(1).1 Debtors
who fail to make complete and truthful disclosure may suffer serious
consequences, including denial of discharge and criminal prosecution.
§ 727(a)(4); 18 U.S.C. § 152.
Another consequence flows from the doctrine of judicial estoppel.
This doctrine generally provides that, if a party takes a position in a case
and benefits from that position, the party may not take a contrary position
in a later case. Thus, if a debtor obtains a discharge based on a disclosure of
assets that does not include a legal claim against a third party, and the
nondisclosure was not the result of inadvertence or mistake, the debtor
1 Unless otherwise indicated, all citations to sections refer to the Bankruptcy Code, 11 U.S.C.
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might be barred from asserting that claim in a later case. See Ah Quin v.
Cnty. of Kauai Dep't of Transp., 733 F.3d 267 (9th Cir. 2013) (discussing the
standards for judicial estoppel where a debtor omitted a lawsuit from
bankruptcy schedules but later sought to pursue the claim after discharge).
Chapter 13 debtors must make full disclosure in order to obtain plan
confirmation. The debtor must prove that
the value, as of the effective date of the plan, of property to be
distributed under the plan on account of each allowed
unsecured claim is not less than the amount that would be paid
on such claim if the estate of the debtor were liquidated under
chapter 7 of this title on such date . . . .
§ 1325(a)(4). In order to satisfy this requirement, the debtor must identify
and value every item of nonexempt property included in the estate.
Complying with this requirement can be a challenge for some
debtors. Many debtors are subject to collection activity immediately before
the bankruptcy filing. Creditors engaged in this activity sometimes violate
the Fair Debt Collection Practices Act, state laws governing foreclosures
and repossessions, and the like. These violations can give rise to claims that
the debtor might be able to assert against third parties. Debtors must
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include legal claims against third parties in their asset disclosures. But the
debtor and the debtor’s counsel may not have had time to evaluate and
identify these claims before filing.
The proposed special provision in this case is meant to address these
issues. It acknowledges that the debtor has not had a full opportunity to
evaluate all claims and attempts to ensure that the debtor will not benefit
from any nondisclosure because recoveries on undisclosed claims will be
devoted to creditors.
But the trustee correctly points out that the proposed special
provision does not go far enough. It applies only to “consumer claims” but
does not define that term. It does not require debtors to disclose newly
discovered claims until the debtor unilaterally decides that the claims are
“recoverable” and that their value exceeds any applicable exemption. It
says that the nonexempt value of the claims will be “contributed into the
plan” but says nothing about the mechanism by which that would happen.
Therefore, this plan does not ensure that creditors will receive at least as
much as they would receive in a chapter 7 liquidation, and the plan is not
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confirmable.
The court would be inclined to confirm a plan if it included a
provision like the following:
The debtor has disclosed in Schedule A/B all claims against
third parties of which the debtor is aware. If the debtor learns
after confirmation that the debtor may have claims against
third parties that were not scheduled, the debtor will promptly
file (1) amended schedules disclosing the nature and estimated
value of the claim and claiming any applicable exemption, and
(2) if the debtor believes that the value of the claim is greater
than any applicable expenses and exemptions, a motion to
modify the plan in an appropriate manner.
If the trustee and debtor’s counsel find this provision acceptable, they
may jointly submit an order adding this provision to the plan confirming
the plan as modified. If the trustee and debtor’s counsel both wish to
propose an alternative provision, they may submit a proposed order with
their preferred language for the court’s consideration. If the trustee and
debtor’s counsel cannot agree on such a provision, the court will enter an
order denying confirmation of the plan and providing that the case will be
dismissed unless, within fourteen days after entry of the order, the debtor
files an amended plan.
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END OF ORDER

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