Can You Sue Your Bankruptcy Lawyer for Malpractice?

Bankruptcy is a deadline-heavy practice. Claims often come from debts left off the schedules, exemptions not claimed, required documents not filed, deadlines missed for objecting to claims or responding to motions, and advice about reaffirming a debt that turned out badly.

In the ABA's Profile of Legal Malpractice Claims covering 2020 to 2023, collections and bankruptcy accounted for 8.84 percent of claims, fifth among all practice areas. That is close to the 9.20 percent share the ABA reported for the same category in its 2011 study, cited in a 2015 malpractice presentation posted by the U.S. Bankruptcy Court for the Western District of Wisconsin.

An older published example: in Hutchinson v. Smith (Miss. 1982), Chapter 7 debtors sued their lawyer for failing to schedule priority tax claims and related errors, leaving $900 in local taxes and $737 in IRS penalties and interest undischarged. The court did not reach the merits, but held that the longer tort statute of limitations applied.

Before filing a malpractice suit, look at the tools the Bankruptcy Code already gives you. They can be faster and cheaper.

Under 11 U.S.C. § 329, a debtor's lawyer must disclose to the bankruptcy court what they were paid or promised within one year before the filing, and if the compensation exceeds the reasonable value of the services, the court may cancel the agreement or order the excess returned. You can ask the court, or the U.S. Trustee, to review the fee.

Consumer debtors have a second tool. The U.S. Supreme Court held in Milavetz, Gallop & Milavetz v. United States (2010) that lawyers who provide bankruptcy assistance to consumers are debt relief agencies under federal law. Under 11 U.S.C. § 526(c)(2), a debt relief agency is liable for the fees it received, actual damages, and reasonable attorney fees if a client's case is dismissed or converted because the agency intentionally or negligently failed to file a required document, or if it intentionally or negligently disregarded the material requirements of the Bankruptcy Code or Rules.

For fee problems outside bankruptcy court, see overbilling and fee disputes.

Bankruptcy adds a wrinkle other practice areas do not have. Under 11 U.S.C. § 541(a)(1), the bankruptcy estate includes all of the debtor's legal or equitable interests in property as of the commencement of the case. A malpractice claim that already existed when you filed, for example against a lawyer who handled an earlier matter, may be estate property that the trustee controls.

Claims arising from the bankruptcy lawyer's own mistakes during the case raise different timing questions. Have a lawyer sort out who owns the claim before you file suit, and make sure any claim you know about is disclosed in your schedules. Leaving a known claim off can create problems of its own.

As with any legal malpractice claim, you must prove a lawyer-client relationship, a breach of the standard of care, causation, and damages. Causation is often the hard part in bankruptcy.

In Nelson v. Taoka (Ohio Ct. App. 1992), farm debtors in Chapter 11 sued their lawyer for failing to respond in time to a secured creditor's motion for relief from the automatic stay. The court found breach and damages clear but no causation: the debtors had to show that, but for the lawyer's failure, they could have successfully reorganized, and their expert, a retired bankruptcy judge, could not say unequivocally that a plan would have been confirmed. A bankruptcy malpractice plaintiff generally must prove the bankruptcy would have turned out better, such as a debt discharged or a plan confirmed, if the lawyer had acted competently.

That is the case within a case, and it usually needs an expert witness. The Wisconsin presentation notes that a malpractice claim based on bankruptcy law generally requires expert testimony. See legal malpractice expert witnesses.

Deadline traps that lead to bankruptcy claims

Bankruptcy runs on deadlines set by the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and court orders. The 2015 Wisconsin presentation observed that bankruptcy practice probably involves more deadlines than any other area of law. Several of them come up repeatedly in claims.

The exemption deadline shows how strict these rules are. The presentation notes that under Bankruptcy Rule 4003, objections to a debtor's claimed exemptions must be filed within 30 days after the meeting of creditors concludes, and that the U.S. Supreme Court enforced that deadline strictly in Taylor v. Freeland & Kronz (1992), even where the exemption had no colorable basis. Under Bankruptcy Rule 4003(b), an objection to a debtor's claimed exemption generally must be filed within 30 days after the later of the conclusion of the meeting of creditors or the filing of an amendment or supplemental schedule. Missing that deadline can cost a creditor dearly, and claiming the wrong exemption can cost a debtor just as much.

Reaffirmation agreements are another trap. Under 11 U.S.C. § 524(c)(1), a reaffirmation agreement must be made before the discharge is granted. Lawyers who let clients reaffirm debts without explaining the consequences, such as an underwater second mortgage, can face claims when the client is later sued on the reaffirmed debt.

Creditors' lawyers make mistakes too. A creditor whose lawyer missed the deadline to object to a discharge or file a claim can also have a malpractice case, subject to the same causation rules.

Damages depend on what the error cost:

• Undischarged debt. The amount of a debt that survived because it was left off the schedules, plus interest and penalties, as in Hutchinson.
• Lost property. The equity in a home, car, or other asset lost to a missed exemption or stay relief.
• Refiling costs. Filing fees and new lawyer fees after a dismissal.
• Fees paid. Refunds under § 329 or § 526, or as damages in a malpractice suit.

In Hutchinson v. Smith (Miss. 1982), the debts left undischarged by the alleged errors were $900 in local taxes and $737 in IRS penalties and interest, which shows how small some bankruptcy losses are. Courts generally will not let you recover the same loss twice, so a fee refund ordered by the bankruptcy court may reduce what you can recover later.

State law usually sets the deadline for a malpractice suit, and it varies widely. Wisconsin applies a six-year statute of limitations, Wis. Stat. § 893.53, to legal malpractice claims, while California generally allows one year from discovery and no more than four years from the error. Check your state on the statute of limitations page. It is usually easier to raise fee problems while your bankruptcy case is still open.

1. Pull the docket and your filed schedules from the court's electronic records or your file.
2. Compare the schedules to the debts and assets you gave the lawyer.
3. Find the lawyer's disclosure of compensation.
4. Ask a new bankruptcy lawyer whether the case can be reopened, amended, or refiled.
5. Get your client file. See how to get your case file.

If you think your bankruptcy lawyer's mistake cost you, a free case review takes about two minutes and can connect you with an independent attorney who handles legal malpractice claims in your state.