Docket 25-6
Keathley v. Buddy Ayers Construction Inc.
DecidedJun 11, 2026
9-0unanimous decision
Source: CourtListener.
Court rejects rigid two-factor test for excusing bankruptcy disclosure failures in personal-injury suits
What it does
The Court unanimously rejected the Fifth Circuit's narrow two-factor test for determining whether a debtor's failure to disclose a claim in bankruptcy was an "inadvertent or mistaken" omission. Courts must now look at the totality of all relevant facts and circumstances surrounding the omission, rather than limiting the inquiry to just two factors. The ruling vacates the Fifth Circuit's judgment and sends the case back for a fresh review under the broader standard.
Who benefits
Bankruptcy debtors who failed to disclose a personal-injury or other civil claim during open bankruptcy proceedings and can show, through the full range of evidence, that the omission was an honest mistake rather than a deliberate concealment.
Who is affected
Defendants in personal-injury or civil lawsuits who previously relied on the Fifth Circuit's strict two-factor test to get cases dismissed when a plaintiff-debtor had failed to disclose the claim in a concurrent bankruptcy proceeding.
Practical impact
In the Fifth and Tenth Circuits, courts must now conduct a broader, fact-specific review of all circumstances surrounding a bankruptcy disclosure failure before dismissing a debtor's civil lawsuit on judicial estoppel grounds. Bankruptcy debtors in those circuits who previously would have had their lawsuits automatically dismissed under the two-factor test now have the opportunity to present the full picture of why they failed to disclose a claim. The case is sent back to the Fifth Circuit to reconsider Keathley's personal-injury suit against Buddy Ayers Construction under the totality-of-the-circumstances standard.
Majority reasoning
The Court held that judicial estoppel — a legal rule that stops a party from taking contradictory positions in different court proceedings — is an equitable doctrine, meaning it is rooted in principles of fairness and must be applied flexibly on a case-by-case basis rather than through rigid formulas. The Fifth Circuit's two-factor test was flawed in two ways: it was too rigid because it barred courts from considering any evidence of inadvertence beyond the two specified factors, and it was too broad because both factors (knowledge of the underlying facts and a potential motive to conceal) are almost always present in any bankruptcy omission, making the "inadvertence or mistake" exception nearly impossible to satisfy. The Court reasoned that a test whose conditions are almost always met is a poor fit for a genuine, fair inquiry into whether an omission was actually intentional. Because equity requires flexibility and attention to all the particulars of a case, courts must examine the totality of the circumstances — including all evidence bearing on whether the omission was deliberate or accidental — rather than stopping at just two factors. The Court left open whether judicial estoppel should apply in the bankruptcy context at all, deciding only that the Fifth Circuit's specific test was wrong.
Constitutional question
When a bankruptcy debtor fails to disclose a personal-injury claim and later sues on that claim, may courts apply a rigid two-factor test — asking only whether the debtor knew the underlying facts and whether there was a potential motive to conceal — to decide whether the omission was inadvertent or a mistake for purposes of judicial estoppel?
Precedent changed
The Court narrowed the practical reach of the Fifth Circuit's own precedents — specifically In re Coastal Plains, Inc., 179 F.3d 197 (CA5 1999) and Love v. Tyson Foods, Inc., 677 F.3d 258 (CA5 2012) — by holding that the two-factor inadvertence test those cases established is legally insufficient.