Plaintiff got herself into a world of money trouble, and did not seem to have a way out.  When Bankruptcy beckoned, she filed a petition.  In doing so, all of her legal malpractice claims were lost.  How did this happen?

Burbacki v Abrams, Fensterman, Fensterman, Eisman, Formatto, Ferrara & Wolf, LLP  2016 NY Slip Op 30749(U)  April 15, 2016  Supreme Court, Kings County
Docket Number: 509725/2015  Judge: David B. Vaughan describes how bankruptcy affects prior claims.

“The main thrust of the plaintiff’s complaint is that she would have been successful in her claims and legal actions against Gorelik, the plaintiff in Gorelik et al v Burbacki, et al, Index No 18128-2008, Stuart Wachs, Esq (“Wachs” or “first attorney”)–her prior counsel, and Richard Kaplan (“Kaplan”)–her accountant, had it not been for thedefendants’ actions and/or omissions in advising her about the bankruptcy process prior to her filing for bankruptcy and in the preparation and filing of her bankruptcy petition. The following facts are stated in the plaintiff’s complaint. Ella Burbacki was a named defendant in Gorelik et al v Burbacki, et al, Index No 18128-2008 in 2008 (“Gorelik matter”). She was initially represented in that action by Stuart Wachs, Esq, (“Wachs” or “first attorney”), who was recommended to her by her accountant Richard Kaplan (“Kaplan” or “accountant”). In 2011 Plaintiff sought to obtain new counsel and retained the defendant on December 14, 2011. Upon Burbacki’s failure to compensate her first attorney $80,000 and the accountant $20,000, they refused to turn over her files to her new counsel, the defendants in the instant matter. After the defendants made several appearances for plaintiff in court, Burbacki’s matter was set for trial for March 22, 2012. Unable to compensate either Wachs and Kaplan for their past litigation work or to pay her newly retained attorneys for litigation work going forward, Burbacki filed for bankruptcy. Prior to filing for bankruptcy, Burbacki’s greatest concern was that her house be protected. On or about March 20, 2012, Burbacki filed a voluntary petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of New York. Burbacki’s
matter was set for trial for March 22, 2012. Unable to compensate either Wachs and
Kaplan for their past litigation work or to pay her newly retained attorneys for litigation work
going forward, Burbacki filed for bankruptcy. Prior to filing for bankruptcy, Burbacki’s
greatest concern was that her house be protected. On or about March 20, 2012, Burbacki
filed a voluntary petition under Chapter 7 of the Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of New York. ”

“Here, it is undisputed that at the time plaintiff switched counsel to the defendants she owed substantial amounts of money to several creditors including $100,000 to her former counsel Wachs and accountant Kaplan. Furthermore, the defendants’ could not obtain plaintiff’s legal file from Wachs and Kaplan, since they asserted a retaining lien for their fees, hindering their ability to represent Burbacki. Plaintiff was also unable to compensate her new counsel for their litigation work going forward. By plaintiff’s own admission in her pleadings, First National Bank of Jeffersonville had a large deficiency judgement against her. Furthermore, a unanimous jury returned a verdict against plaintiff and in favor of Gorelik in the amount of $331,423.04, which Justice Bayne refused to set aside. Besides filing for bankruptcy and settling the claims, as she did, plaintiff fails to articulate any theory as to how she would have compensated all her creditors or dealt with the situation she was in, when she admits she had no money to do so. The Court finds that Burbacki’s blanket assertion that she would not have filed for bankruptcy had she known that her house “was not safe” or that she would not have settled with Wachs, Kaplan and Gorelik but would have prevailed against them in court is mere speculation. Finally, a settlement where an outstanding amount is lowered in exchange of a general release is a common and generally accepted practice in litigation. Accordingly, accepting as true the facts alleged in the complaint and according the plaintiff the benefit of every favorable inference the compliment, this Court rules that on its face, the complaint fails to Page 4 of 6 [* 4] 5 of 6 l. ‘ allege facts from which it could be reasonably inferred that the plaintiff would not have suffered any damages but for the defendants’ negligence. The Court also agrees with the defendants that Burbacki’s claims are the property of the bankruptcy estate and may not be maintained by the plaintiff in her individual capacity. Pursuant to 11 USC 241(a)(1), all the causes of actions that could have been brought on the date of filing a bankruptcy petition become property of the bankruptcy estate upon the filing of the petition. In re Costello, 255 BR 110, 113 (Bkrtcy, EDNY 2000). Pre-petition and filing malpractice claims fully accrue by the time the petition is filed and these claims become property of the estate. In re Strada Design Associates, Inc., 326 BR 229 (Bkrtcy, SONY 2005). Even if a cause of action accrues after the bankruptcy petition is filed, it still becomes property of the bankruptcy estate if there are “sufficient roots” in the debtor’s pre-bankruptcy activiites to warrant inclusion in their estate. Rivera v Ndola Pharmacy Corp., 497 F.Supp.2d 381, 396 (EDNY 2007) citing In re Strada Design Associates, Inc., 326 BR 229, 236 (Bkrtcy. S.D.N.Y.2005). See, SegalvRochelle, 382 US 375 (1966). “