What to Expect in Your Adversary Proceeding

In the traditional adversary proceeding in bankruptcy, three parties are involved, including a debtor, a creditor, and a bankruptcy trustee. In essence, an adversary proceeding involves one of these parties opposing a potential discharge or asset transfer relevant to an individual debtor’s bankruptcy case. To resolve the disputed matter, a bankruptcy judge hears arguments presented and makes a final decision. Debtors should be aware of the potential of adversary proceedings, as well as the legal implications these may cause to their bankruptcy case. Furthermore, adversary proceedings are typically not part of the average bankruptcy attorney’s role due to the legal complexity and prolonged nature of these cases, and in turn, many debtors find themselves forced to seek outside legal counsel to represent their interests in an adversary proceeding.

The Three Main Types of Adversary Proceedings

The most commonly filed adversary proceeding involves a creditor making claims that a debtor should not be relieved of a given debt through discharge. In essence, the creditor demands an outstanding debt obligation be paid, and not discharged through bankruptcy, per the terms of bankruptcy statutes governing exceptions to discharge. Exceptions to discharge include debts created by a debtor through fraud, with intent to default and discharge through bankruptcy, or certain judgment awards. The creditor seeks the court’s intervention in preventing a proposed discharge, as well as reinstating the debt obligation owed by a debtor.

In the second commonly filed form of adversary proceeding, a trustee overseeing a bankruptcy case will argue that a given debtor should not be allowed discharge based on one or more grounds. Commonly, trustees will state that the applicable schedules were not filed properly, or that a debtor’s actions are intentionally fraudulent. This may include instances of asset or property transfer, motions to dismiss for missing filing deadlines, or motion to dismiss for failure of the debtor to appear before a trustee. In certain cases, a trustee may file an adversary proceeding to force a debtor into Chapter 13 from Chapter 7, if the trustee believes bad faith or intentional misconduct is afoot. In other instances, a trustee may file an adversary proceeding on behalf of debtors in order to collect debts paid to creditors in certain instances.

Finally, in the third type of adversary proceeding, an individual debtor may file adversary proceedings against creditors for actions that violate protections afforded under the U.S. Bankruptcy Code. These often revolve around violations of automatic stay provisions or violations of discharge protections.

Getting Legal Help with Your Adversary Proceeding

In order to promote any form of favorable outcome, a debtor must use legal representation before and during any adversary proceeding. As noted above, this may require seeking another lawyer who is willing to take on adversary proceeding cases, which not all bankruptcy lawyers are inclined to do.