What is an Adversary Proceeding?

At its core, an adversary proceeding is basically a lawsuit filed during a bankruptcy case. Adversary proceedings may be filed by the debtor, the bankruptcy trustee, or the creditors. In most cases, the people bringing the adversary proceedings are usually seeking to achieve a specific purpose such as recovering fraudulently transferred property, having a debt declared non-dischargeable, or seeking redress for bankruptcy law violations. Although you may consider representing yourself without an attorney if adversary proceedings are filed against you, having legal counsel on your side may make all of the difference in your case. Read on to discover why adversary proceedings are filed as well as what to expect when adversary proceedings are filed against you.

Why Are Adversary Proceedings Filed?

The exact reason why adversary proceedings are filed will depend on who is filing the lawsuit. For instance, debtors may file adversary proceedings during their own bankruptcies, most commonly to seek redress against their creditors who may have violated the automatic stay. In addition, in certain jurisdictions, debtors may need to file these proceedings if they are looking to eliminate a junior lien such as a second mortgage from their house through lien stripping.

Bankruptcy trustees may also file adversary proceedings in an attempt to request that the court deny the debtor’s bankruptcy discharge. For example, if you hid assets, lied on your bankruptcy papers, or tried to abuse the bankruptcy system in other ways, the trustee may argue that you are not eligible to reap the benefits of a discharge. Trustees may also attempt to recover fraudulent transfers and preferential payments by filing adversary proceedings.

When creditors file adversary proceedings, it is usually to salvage debt from being discharged. If certain conditions are met, debts may be declared non-dischargeable, and the debtor will be required to pay these debts, even if the bankruptcy is deemed valid. The most common examples are debts incurred shortly before the debtor filed for bankruptcy as well as debts obtained by fraud. In most cases, creditors must file adversary proceedings in order to object to the discharge.

What Happens When Adversary Proceedings Are Filed?

Formal complaints must be filed with the court and served on the defendant in order to file adversary proceedings. The complaint will indicate the relief requested as well as all of the relevant facts pertaining to the case. Depending on your jurisdiction’s specific rules and regulations, the debtor will have a period of time to respond to the proceeding. If you fail to respond, a default judgment may be entered against you.

Defending against adversary proceedings requires familiarity with substantive bankruptcy law, local court rules, and the Federal Rules of Bankruptcy Procedure. For example, if a creditor is objecting the bankruptcy discharge and the amount of debt you owe is relatively low, you might be able to come to an agreement with the creditor and negotiate in order to settle the matter without involving the court.

On the other hand, when adversary proceedings involve more serious matters, trials are often required. In these cases, legal representation may be to your benefit. If you or someone you love is facing an adversary proceeding during your bankruptcy case, it is important to speak with an experienced bankruptcy attorney who handles these situations on a regular basis in order to learn more about your options and how to achieve the most successful outcome possible.