My San Diego Ch 7 bankruptcy attorney incorrectly told me (several times) that I only needed to wait 6 months after a $10,000 loan repayment to my mother before filing for BK. (I later discovered it is considered preferential payment if within 12 months prior.)
After the BK discharge, the trustee went after my mother for repayment. My mother (from Wisconsin), has had to hire an attorney who negotiated the amount to $7,500. My mother's attorney then demanded the BK attorney pay this amount as she was an intended beneficiary. He finally agreed to pay $4,000 for her release, which my mother will accept.
When I can, I will repay my mother the balance ($3,500, plus her attorney fees). Can I then take the BK attorney to small claims court for this amount (as well as my fees to him)?
It is unlikely small claims court would have "subject" matter jurisdiction in this case since the issue has to do with more than simply owing money.
The thing with malpractice is that it requires more than the attorney making a mistake that they shouldn't have. The client must have relied on the mistake and, here is the key, must have suffered some legal, actionable, and measurable harm. Candidly, as the debtor, you weren't harmed by the attorney's mistake. Strictly speaking, your obligation to pay your mother was discharged in your BK. What happens is, (1) you repaid mom $10,000 for loan 6 months prior to filing BK, which is an insider preference. (2) Mom pays the trustee and goes after the attorney for damages, and appears to have settled the matter. (3) You, by virtue of your BK, have no further debt to Mom. So, your "voluntary" decision to repay is not an actionable harm because your mom has not legal claim against you for payment of this debt.
Yes, the attorney appears to have made a mistake. But a preference is the problem of the person receiving the preference, not the debtor. So, the debtor rarely has recourse in malpractice for lack of actual harm or damages in a preference issue.
Keep in mind, preference is just one legal theory upon which the trustee could have used on this issue, had you waited the 12 months, the trustee might have pursued it as a fraudulent conveyance depending on the overall facts.
While my esteemed colleague is correct that this does not belong in small claims court, I'd question whether you have any damages as a result of the alleged malpractice. Certainly you were advised incorrectly and your mother suffered as a result but whether you were damaged as a result of your attorney's malpractice remains to be seen. You hired an attorney to obtain a discharge of all of your dischargeable debt. You received that discharge. One of your creditors (your mom) ended up with an unpleasant result but your result was what you bargained for - your discharge. You should most certainly consult with an attorney who specializes in legal malpractice in order to determine whether you should pursue the attorney who mishandled your case.
IMO, no, you cannot prevail on a claim against your attorney for malpractice or anything else. Any payment you make to your mother is entirely voluntary and as such would not support a claim for damages. Additionally, as pointed out by Mr. Berkus, a preferential transfer is only one theory that could be used to avoid the transfer of the $10,000 to your mother. In many such circumstances, the facts would also support the theory of fraudulent transfer. Your BK attorney has already stepped up to the plate and paid $4,000 for a release which probably includes any claim you might be able to state and/or an indemnification provision. In any and all events, any attempt to prove your claim would surely exceed the $3,500 settlement shortfall.
Small claims court does not usually deal with malpractice and other forms of negligence ... but it's possible. You were clearly given bad advice ... but you would have to prove that waiting another 6 months would have saved the $3500 plus atty fees and would not have cost you at least as much as a result of the delay.
Consult with a malpractice attorney, however i do not think you have much of a claim here. Your attorney has a duty to you, NOT to your mother, who is an insider creditor. You hired a BK attorney to file your case and achieve a successfull outcome. Did you receive a discharge ? did you suffer any pecuniary damages?
Bankruptcy is a legal way for people or businesses who are no longer capable of paying back their bills to clear these debts and start over.
Chapter 7 bankruptcy is a form of bankruptcy where your debts are canceled, but some of your assets are sold to pay off part of your debt.
Written by attorney Josh Johnson
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