NY Underlying Bankruptcy Action
Facts: This is an action for legal malpractice arising out of Defendants’ representation of Plaintiff in a bankruptcy proceeding. Plaintiff alleges in the verified complaint that he made a transfer to his “daughter” Plaintiff and this disclosed in the bankruptcy petition. The bankruptcy trustee brought an adversarial proceeding alleging that the transfer was fraudulent because it was made within one year of the filing of the bankruptcy proceeding. Plaintiff claimed that the Defendants should have advised Plaintiff to delay filing for bankruptcy until one year after the transfer was made to avoid the adversarial proceeding.
Issue: Does the Plaintiff have standing to file this suit against the Defendants?
Result: No, the Plaintiff did not have standing because
• Any legal malpractice cause of action necessarily accrued prior to the filing of the Plaintiff’s bankruptcy petition so,
• Upon commencement of the Plaintiff’s bankruptcy proceeding, the malpractice cause of action became "property of the estate" pursuant to the Bankruptcy Code.
Lesson: In a Bankruptcy action, any cause of action that arises prior to a bankruptcy proceeding beginning is property of the estate and not the individual. Only a person with standing can sue.
Posted in: New York