When one files a petition in bankruptcy, ownership of assets is upended.  Some if not all assets of the debtor become part of the estate, and will be used to pay creditors.  A current cause of action in legal malpractice, even if not reduced to a law suit is one such asset.  What happens if the negligence is unearthed in the bankruptcy proceedings?  Is it the property of the estate or that of the debtors; is is pre-petition or post-petition.

in IN RE: ANNE DE HERTOGH and PETER DE HERTOGH, DEBTOR;  CASE NO. 04-22006 (ASD), CHAPTER 7; UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF CONNECTICUT;2009 Bankr. LEXIS 2466;August 28, 2009 we see the following:

"The major point of contention in the present proceeding concerns whether the Malpractice Action is property of the estate or of the Debtors. Courts have taken several approaches to this question. Some, relying on Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L. Ed. 2d 136 (1979), and the language of Section 541, have looked to whether, as of the petition date, a cause of action had accrued under applicable state law. See, e.g. Swift v. Seidler (In re Swift), 198 B.R. 927 (Bankr. W.D.Tex. 1996) (under Texas law, cause of action for legal malpractice causing loss of an exemption could only accrue post-petition and was therefore not property of the estate); Holstein v. Knopfler (In re Holstein), 321 B.R. 229 (Bankr. N.D. III. 2005) (cause of action for legal malpractice allegedly causing denial of discharge accrued post-petition; was property of debtor, not property of estate); But see Helbling v. Josselson (In re Almasri), 378 B.R. 550 (Bankr. N.D. Ohio 2007) (concluding that, under Ohio law, a malpractice claim that accrued at the time petition was filed rather than post-petition when discharge was revoked; held property of estate). Other courts, relying on Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 515, 15 L. Ed. 2d 428 (1966) [*8] considered whether a cause of action that accrued post-petition was nevertheless "sufficiently rooted in the pre-bankruptcy past and so little entangled with the bankrupt’s ability to make an unencumbered fresh start that it should be regarded as ‘property’ under § 70(a)(5) [of the former Bankruptcy Act]." See, e.g. Casey v. Grasso (In re Riccitelli), 320 B.R. 483, 491-92 (Bankr. D.Mass. 2005) (malpractice claim alleging loss of homestead exemption that accrued post-petition was not "sufficiently rooted in the pre-bankruptcy past" to become property of the estate); But see Wheeler v. Magdovitz (In re Wheeler), 137 F.3d 299 (5th Cir. 1998) (malpractice claim for allegedly causing debtor’s conviction for bankruptcy fraud held property of estate even though cause of action did not accrue under Mississippi law until post-petition); Rich v. Strada Design Associates, Inc. (In re Strada Design Associates, Inc.), 326 B.R. 229, 236 (Bankr. S.D.N.Y. 2005) (concluding that claim that attorney filed petition under wrong chapter was property of estate; held that "a cause of action will be ‘property of the estate’ if it has sufficient roots in the debtor’s pre-bankruptcy activities and is not entangled [*9] with the debtor’s ‘fresh start,’ regardless of when the claim accrues under state law.").

The Court finds the matter best resolved by direct reference to Bankruptcy Code Sections 541(a)(1) and § 541(a)(7), and the property interests created by state law. Such an approach, the same as is used to determine whether any other interest in property becomes property of the estate, is most consistent with the language, precedents and policy of the Bankruptcy Code. See, e.g. Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1093 (2d Cir. 1995) ("Whether the rights belong to the debtor . . . is a question of state law. Thus, the trustee stands in the shoes of the debtors, and can only maintain those actions that the debtors could have brought prior to the bankruptcy proceedings.") (citations and internal quotation marks omitted). Accordingly, the Court’s analysis focuses on when (pre- or post-petition) and to whom (the estate or the post-petition debtor) a legally cognizable interest in the cause of action arose under the applicable state law.

HN2The filing of a Chapter 7 petition creates a bankruptcy estate encompassing "all legal or equitable interests of the debtor in property as of the commencement [*10] of the case," 11 U.S.C. § 541(a)(1), including any causes of action possessed by the debtor. Seward v. Devine, 888 F.2d 957, 963 (2d Cir. 1989). "Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding." Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L. Ed. 2d 136 (1979).
HN3The federal bankruptcy code broadly defines property of a debtor’s estate as including "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1) (1988). Within this definition of a debtor’s property fall the debtor’s rights of action. . . .

HN4Although federal bankruptcy law determines the outer boundary of what may constitute property of the estate, state law determines the "nature of a debtor’s interest" in a given item. Therefore, whereas federal law instructs us that [an action] may constitute property of [the Debtors’] estate, state law determines whether [the Debtors’] interest in the cause of action is sufficient to confer on the estate a property right in [*11] the action."