Shaw-McDonald v. Eye Consultants of N. Va., Record No. 0067-23-4 (Va. Ct. App. Jan. 30, 2024)
What happens when a bankruptcy trustee fails to administer an injury claim before the bankruptcy case is closed?
Facts. In August 2019, Fatima Shaw-McDonald sued Eye Consultants of Northern Virginia for medical malpractice that occurred in 2017. In March 2022, she filed for Chapter 7 bankruptcy. She incorrectly checked “no” on the bankruptcy petition questionnaire in response to whether she had any claims against any third parties or had filed a lawsuit or made a demand for payment and to whether she was a party in any lawsuit.
Eye Consultants eventually learned of the petition. It moved to dismiss the malpractice case for lack of standing since the malpractice case was now an asset of the bankruptcy estate and only the trustee had standing to bring the claim. The trial court deferred ruling on the motion to give the parties time to brief it. On the same day, Shaw-McDonald amended her schedules in the bankruptcy court, listing her malpractice claim and requesting that it be exempted.
Two weeks later, the bankruptcy trustee certified that Shaw-McDonald’s bankruptcy estate was fully administered. About a week later, the bankruptcy case was closed and the bankruptcy trustee discharged, leaving the malpractice claim “not otherwise administered.”
Several weeks later, the trial court dismissed Shaw-McDonald’s case for lack of standing. Shaw-McDonald appealed.
Issue. Whether Shaw-McDonald had standing to bring her malpractice claim.
Holding. Yes. Shaw-McDonald’s claim was restored to her through abandonment by the bankruptcy trustee, thus it was as if no bankruptcy petition had been filed.
Notes. When a debtor files for bankruptcy, all her legal and equitable interests become part of the bankruptcy estate and under the sole control of the trustee. This includes inchoate claims and pending actions. There are two ways by which a bankruptcy asset, such as a malpractice claim, can be restored to the debtor: exemption and abandonment. The Bankruptcy Code provides that any property that is “not otherwise administered at the time of the closing of a case is abandoned to the debtor.” This occurs by operation of law. When a claim is abandoned, it reverts to the debtor as if no bankruptcy petition had been filed.
Here, Shaw-McDonald lost control over her malpractice claim when she filed for bankruptcy, but regained control with the trustee abandoned the claim. Further, in abandoning the claim, the malpractice case was restored to Shaw-McDonald as if no petition had been filed. Thus, when the trial court dismissed the case several weeks after the trustee had abandoned the malpractice claim, Shaw-McDonald had standing.
Importantly, the Court of Appeals contrasted this case from the case of Kocher v. Campbell, 282 Va. 113 (2011). In Kocher, the plaintiff filed for bankruptcy after he suffered injuries in a car crash, but never listed the inchoate claim as an asset on his bankruptcy schedule. He obtained a discharge, then filed and nonsuited two personal injury suits due to the crash. After the second nonsuit, the plaintiff asked the bankruptcy trustee to reopen the bankruptcy case so that he could exempt his personal injury claim. Before this could happen, however, he filed a third suit. Then, the statute of limitations ran. Unlike Shaw-McDonald, the Kocher plaintiff did not have standing at the time he filed any of his suits, thus they were all nullities that did not toll the statute of limitations.