Legal Malpractice Judgment Could Not Be Discharged in Bankruptcy

In Jahrling v. Estate of Stanley Cora, the Seventh Circuit Court of Appeals affirmed that a judgment entered against an attorney in a previous legal malpractice case could not be discharged in his subsequent bankruptcy proceeding.  In the underlying case, the attorney represented an individual who only spoke polish in the sale of his home.  The attorney did not speak polish; therefore, there was a significant language barrier between the two during the transaction.

The home was valued at $106,000, but it only sold for $35,000.  The buyer subsequently flipped the house for $145,000.  The individual may have sold the house under value because he believed the purchase agreement included a clause that allowed him to live in an upstairs room of the home for the rest of his life.  However, the contract the attorney provided him contained no such provision.

The individual thereafter sued his attorney for legal malpractice and a judgment was entered against him.  Then, the attorney filed for bankruptcy and listed the judgment as a debt that he sought to discharge. 

The bankruptcy court, and later, the Seventh Circuit, found that the judgment could not be discharged due to the attorney’s defalcation of duties.  Under the U.S. Bankruptcy code, defalcation is an exception to discharge of a debt.  Defalcation occurs when the debtor with knowledge acts in a reckless manner in respect to their fiduciary responsibilities.  Here, the courts found that the attorney recklessly breached his standard of care by representing an individual who did not speak the same language and, relied upon only opposing counsel to act as an interpreter.