Adversary Proceedings in Bankruptcy

An adversary proceeding is a lawsuit filed in your bankruptcy. Learn what happens in an adversary proceeding.

Most bankruptcy cases involve filling out forms, attending the meeting of creditors, and, in Chapter 13 matters, paying into a repayment plan. However, in rare cases, the court can't finalize a bankruptcy without first resolving a lawsuit called an adversary proceeding. The lawsuit could involve an objection to the bankruptcy discharge, a fraud allegation, or something else entirely. In this article, you'll learn what to expect if someone files an adversary proceeding in your bankruptcy case.

Why File an Adversary Proceeding

Reasons for filing an adversary proceeding differ based on who is bringing the action—the creditor, a bankruptcy trustee, or the debtor.

Creditors

Typically, a creditor who files an adversary proceeding doesn't want a debt wiped out in the bankruptcy. The creditor might believe that the debtor obtained credit by fraud or incurred it shortly before filing for bankruptcy with no intention of repaying it. Learn more about objections to discharges.

Bankruptcy Trustees

The trustee might file an adversary proceeding asking the court to deny your bankruptcy discharge because you're not entitled to the benefit of a discharge. For instance, the trustee might claim that a debtor:

  • lied on the bankruptcy papers
  • hid assets, or
  • tried to abuse the bankruptcy system in some other manner, such as through an inappropriate use of the automatic stay that prevents creditor collections.

The trustee might also want to recover preferential payments made to a particular creditor or to bring fraudulently transferred property (usually given away or sold for less than its value) back into the estate.

Debtors

It’s unusual for a debtor to bring an adversarial proceeding. It can happen, however. For instance, a debtor who wishes to discharge student loan debt must bring an adversarial proceeding. Also, some jurisdictions require an adversary proceeding if the debtor wants to eliminate a second mortgage (or another junior lien) from a residential house through lien stripping.

What to Expect in an Adversary Proceeding

An adversary proceeding starts with the filing of a formal complaint with the court. The complaint must include relevant facts and explain what the filer hopes to achieve (the requested relief).

The defendant will have a period to respond to the complaint. Failure to do so on time will likely result in the entry of a default judgment—an automatic win.

If a creditor is objecting to your discharge and the amount of debt in question is minimal, you should be able to negotiate with the creditor and settle outside of court. But if the adversary proceeding involves a more serious matter, a trial is usually necessary.

Consult With a Bankruptcy Lawyer

Defending an adversary proceeding requires a familiarity with the Federal Rules of Bankruptcy Procedure, local court rules, and substantive bankruptcy law, and, in some cases, state law, as well. Given the complexity, it’s a good idea to retain a local bankruptcy attorney who regularly handles adversary proceedings.

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