The Chapter 7 Bankruptcy Trustee can take over your lawsuit

They say in Bankruptcy life, two things are certain:  (1) Death and (2) David Doyaga.  Actually, no one says this, but my fellow Bankruptcy NYC Bankruptcy attorney (and mentor) David Doyaga, Esq. was involved in a very interesting case which demonstrates just how important it is to know everything before filing.


In David Doyaga, Sr., as Trustee of the Estate of Gertrude Stafford v. New York Pres. Hospital and Michael Welsh, 06-CV-2150, which can be found on theNew York Law Journal,  the Defendants sued under a theory of judicial estoppel…and lost.  Essentially, a woman who filed an employment discrimination years back filed Bankruptcy and forgot to list the lawsuit in the Statement of Financial Affairs.  She then amended the filing, but listed the value of the suit as “unknown”, which, mind you, was the right thing to list the suit as.  The Defendants said “Homie don’t play that” and filed papers basically stating that Mrs. Stafford gave up her action when she filed for Bankruptcy protection and Big Dave (he has no idea I refer to him in such a way) can’t just come in and step in for her.  Not so, the Court said.  Big Dave CAN come in at any time until the case has been discharged, so long as this is an asset of the Estate and it was noticed as such.  The fact that Mrs. Stafford didn’t initially list it as such doesn’t matter, as it was amended.  Further, the Court properly stated that listing the value of the case as unknown was the right thing to do.  The Court finally stated that there would be no “cap” on the recover Doyaga could get when stepping into Mrs. Stafford’s shoes and that sanctions (which is absurd in this case) were denied.


A few nuggets to take from this:

1.  When you file a Chapter 7 Bankruptcy case, the Trustee has the right to take over any other suits that you are a Plaintiff in (Med Mal, Personal Injury, Employment Discrimination, etc.) and further, he/she has the right to replace your current attorney.

2.  If they do take on the case, you’re basically left with nothing.  You can exempt several thousand dollars, depending on what other assets you may have, but it may be a drop in the bucket if you receive quite a large settlement or win at trial.

3.  Your attorney should tell you 1 and 2 above.  I’m reasonably certain that this happened in the above-referenced case and Mrs. Stafford nevertheless wished to file.  It seems as if the case was already several years old, and at that time there was still no settlement or recovery.  You may have an awesome case, but if you’re having a tough time paying the rent, I can understand that you just can’t wait any longer to get it done.


What happens to the money if something is recovered?  Well, the Trustee get’s his/her attorney’s fees plus a commission on monies that come into the estate. Next the creditors take the rest.

Again, the lesson here is that it’s so important that you go over your entire life situation with your NYC Bankruptcy attorney before filing.