Legal Malpractice

Bankruptcy and Legal Malpractice

By (Andrew Lavoott Bluestone)

The question of when a legal malpractice claim belongs to the debtor and when it belongs to the debtor's estate is of strong significance.  If the former, plaintiff may hire his own attorney and proceed; if the latter, then the trustee in bankruptcy or debtor's estate holds the reins.  Here, from Bankruptcy Law Network is a case in which the legal malpractice included a claim of negligently advising a Chapter 11 filing rather than a Chapter 13 filing.

"A recent New Jersey case, In re Hussain, 2008 WL 5102458 (Bky.D.N.J. Dec. 5, 2008), held that a bankruptcy debtor’s legal malpractice claim against his former bankruptcy attorney was property of the estate, to be administered by the bankruptcy trustee for the benefit of creditors.

The bankruptcy court observed that the legal malpractice claim involved the alleged failure to advise the debtor that he could have filed a Chapter 11 case rather than a Chapter 13 case, and the failure to propose a Chapter 13 plan which could be confirmed by the court. These were actions involving pre-bankruptcy conduct. Accordingly, the legal malpractice claim accrued on the date the bankruptcy petition was filed, and it was therefore property of the estate under bankruptcy code section 541(a)(1). Although the filing of the legally inadequate chapter 13 plan was a post-petition event, it served only to magnify the malpractice claim, and not to create a new malpractice claim belonging to the debtor."

Full post as published by New York Attorney Malpractice Blog on January 02, 2009 (boomark / email).