31 Dec Legal Malpractice Claim is Property of the Bankruptcy Estate, Not the Debtor
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.
The court further held that the bankruptcy debtor could not assert ownership over a legal malpractice claim which was property of the estate, if to do so would diminish funds available to pay creditors.
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