November 30, 2017
“When” is a cause of action property of the bankruptcy estate? In answering this question, attorneys are required to determine when the cause of action matured. Thereafter, we must distinguish between pre-petition, post-petition, post-confirmation, and post-discharge causes of actions. Depending upon where the cause of action falls in relation to the bankruptcy filing, the debtor may or may not be entitled to keep all of the proceeds generated from the cause of action. This article will focus on the pre-petition nature of a cause of action.
The question is not “what is property of the bankruptcy estate” but is rather “when is property of the bankruptcy estate.” This determination requires fact intensive analysis. Whatever opinion the debtor or counsel may have – full and complete disclosure is required and full disclosure is the best means by which to preserve a cause of action for the debtor and the estate. Failure to do so can result in the debtor being estopped from pursuing a cause of action and potentially lead to a malpractice action against debtor’s counsel.