Bankruptcy and Legal Malpractice

With a plummeting economy, bankruptcies are on the rise. This means more individuals interacting with attorneys who undertake to assist them with their legal needs. Fortunately, most lawyers are doing a good job of assisting financially distressed families and individuals with discharging their debts and using the bankruptcy laws to preserve their assets. However, even individuals at the lowest point in their financial life may suffer significant economic losses when the bankruptcy lawyers they seek help from fail to do their job.

In the case of In re: Pullen, 2009 Lexis 2935 (N.D. Ga. 2009) a bankruptcy court awarded damages to a homeowner who was harmed by the bad advice of his bankruptcy lawyers. The homeowner consulted the attorneys for advice on how to prevent his home from being sold in a foreclosure sale. The attorneys erroneously advised the homeowner that he could re-open an old bankruptcy case to stop the foreclosure sale. In fact, the correct procedure would have been to file a new bankruptcy action, which would have immediately halted the foreclosure sale. As a result of the bad advise, the homeowner's home was sold at foreclosure. The homeowner incurred significant legal fees to invalidate the foreclosure sale and regain homeownership. This was accomplished in a second bankruptcy case, by the use of what is known as an adversary proceeding in the bankruptcy court.

In the new bankruptcy case, the court found that the homeowner's attorneys had given bad advice. It held the negligent attorneys responsible for paying their former client the legal fees he had incurred in having to correct the foreclosure sale:

"...Defendants' decision to preoceed with a motion to re-open the 1998 case was based upon a faulty understanding of bankruptcy law and did not accomplish the express purpose sought by Plaintiffs...Because Defendants failed to prevent the Sale, Plaintiffs have incurred substantial legal fees to pursue unwinding the sale in an adversary proceeding in their [second]bankruptcy case..."

This case demonstrates that lawyers in every specialty can cause harm to their clients if they fail to properly advise them. Courts will help these clients if it can be shown that the bad advise resulted in a discernible economic loss directly caused by the bad advise.