Johnson v. Collier

Background

The dispute involved a person who had filed a bankruptcy petition and whether that person could begin a lawsuit in the period between filing and the election of a trustee. The statute expressly allows a trustee, with court approval, to continue suits that the bankrupt had already started before adjudication, but the law was silent about new suits started by the bankrupt after filing and before a trustee is chosen. Some earlier cases reached different conclusions on this question, and a lower court had held that the bankrupt retained title to a cause of action and could sue.

Reasoning

The central question was whether filing the bankruptcy petition strips the filer of the right to start new lawsuits while waiting for a trustee. The Court explained that filing does not divest the filer of title; the filer keeps a defeasible ownership interest until the trustee is elected, at which point title vests in the trustee by operation of law. Given that practical steps like starting suits, issuing attachments, and garnishments may be needed before a trustee is in place, the Court concluded the bankrupt may institute and maintain suits. The Court noted that allowing such suits harms no one: a trustee can start a new action, abate the old one, or intervene in the bankrupt’s suit if beneficial to creditors.

Real world impact

The ruling lets people who have filed for bankruptcy protect and recover estate assets immediately by suing before a trustee is appointed. It preserves potential remedies for creditors, allows trustees to take over or intervene later, and permits courts to protect defendants against double payment if needed.