An adversary proceeding is a separate action filed into a bankruptcy case. During your bankruptcy case any one of three parties is entitled to filing an adversary suit; you, the creditor, or the bankruptcy trustee.  The filing of an adversary proceeding is not common, and will usually not be an issue in the vast majority of bankruptcy cases filed everyday.

Who can file an adversary proceeding?
Any party in interest of a bankruptcy case can file an adversary proceeded.  However, most adversary proceedings are initiated by trustees or creditors that want to dispute the dischargability of a particular debt.  Bankruptcy trustees can also file an adversary proceeding against the debtor or third parties to recover assets in a case.  An adversary hearing may be carried out, for example, if the other party believes that the debt requesting discharge is in violation of the law and is fraudulent.  In other case an adversary case may be filed to obtain property that was inappropriately disposed of during the bankruptcy or immediately prior to the bankruptcy. Individuals may also use adversary proceedings to their advantage in dealings with real estate and small property liens.

Who oversees adversary proceedings?
The bankruptcy court has the authority to oversee adversary court cases and will issue judgments on the case in compliance to Federal Bankruptcy Procedures and the Federal Rules of Civil Procedures.  In most cases a bankruptcy case will be completed without any adversary hearing, but in rare cases a bankruptcy hearing may include several adversary proceedings.

How is an adversary proceeding filed?
An adversary proceeding is filed with an “adversary complaint” to the court with jurisdiction over the bankruptcy case. Adversary bankruptcy claims may be filed , “ by a creditor to object to a debtors discharge, or a debtor may commence an adversary proceeding against a creditor as a response to a violation of an automatic stay.”  All adversary claims are governed by regulations established by Rule 9014 of the Federal Rules of Bankruptcy Procedure.  In some cases a student may even attempt to discharge student loans during a bankruptcy with the entry of an adversary proceeding in a case.

What is a Creditor Adversary Proceedings?
A creditors is the most commonly the party to file an adversary proceeding in a bankruptcy case.  The main purpose of a creditor filing an adversary case is to prevent a discharge of a particular debt of a substantial value. Creditors usually file an adversary proceeding in any of the following circumstances:

  • the creditor feels that debt should be non-dischargeable under bankruptcy law
  • the creditor feels that the debt was created through fraud
  • the discharge will cause willful or malicious injury
  • the debt is part of a personal injury case caused by the debtor driving while intoxicated
  • the filing of the debt in the bankruptcy case was executed in bad faith.

Sharing as much accurate information as possible with your bankruptcy attorney can help you avoid or anticipate whether an adversary proceeding is likely in your bankruptcy case.

What is a Trustee Adversary Proceeding?
Trustees may file for an adversary proceeding if they believe any part of the bankruptcy schedules or bankruptcy documents were filled out fraudulently or if the paperwork was not filled out accurately.  In most cases the trustee will file an adversary proceeding in the bankruptcy case to dismiss the case if the paperwork is not completed entirely, timely, contains false information, is filed improperly, or if the debtor misses a mandatory court hearing without provocation.  In some other cases a trustee may file an adversary hearing against a creditor in order to obtain previously made payments that should be returned in the bankruptcy.  In other instances a trustee may acquire an adversary case in an attempt to reacquire property that was previously transferred to another party and is considered an asset in the bankruptcy case.

What is a Debtors Adversary Proceeding?
Lastly, debtors may issue an adversary proceeding in their own bankruptcy case against a creditor.  Debtors typically use adversary proceedings to regain property or payments that were taken by creditors and in violation of the Federal Bankruptcy Code.  For example a debtor may take out an adversary proceeding against a creditor that violated an automatic stay or a discharge injunction.

What does an adversary proceeding mean in my bankruptcy case?
Just because an adversary proceeding is filed does not mean that the issue in question will interrupt your bankruptcy case.  The adversary proceeding simply means that a judge will be required to determine if the debt will be dischargeable and to settle the disputes between the parties in the bankruptcy.  An attorney may be able to predict your outcome during your adversary proceeding; however, it is up to the judge’s discretion on how the case will be settled.

If you are facing difficult financial issues and would like to talk to an experienced bankruptcy attorney, call us at 770-609-1247.