Although adversary proceedings are a potential part of any bankruptcy case, they are entirely separate processes. Simply put, an adversary proceeding is a lawsuit that arises when a complaint is filed during your bankruptcy case. Such an action can be initiated by the debtor, the trustee, and / or one of the creditors.
When a debtor files, it is usually because they believe that a creditor took actions that violated the Bankruptcy Code, the automatic stay, or the discharge injunction. (For example, if the creditor attempted to collect a discharged debt.) In this instance, the purpose of an adversary proceeding is to collect damages.
Creditor filings are usually due to the creditor’s belief that the debt owed to them should not be discharged in bankruptcy due to circumstances like the following:
- The debtor filed for bankruptcy in bad faith
- The debt was created through fraud or malicious and wilful injury
- The debt arose from a personal injury caused by drunk driving
Such adversary proceedings are possible, but relatively uncommon, as it can be difficult to acquire proof of dishonesty and such issues tend to be brought to light earlier in the process.
Two types of trustee are involved in a bankruptcy case, and both of them can initiate adversary proceedings, although they do so for different reasons. There is the bankruptcy trustee who oversees a case after it is filed, and the U.S. Trustee, who supervises the bankruptcy trustee.
Bankruptcy trustees usually file adversary proceedings over issues such as paperwork that is inaccurate or filed too late, or the debtor improperly transferred property or money to a creditor. U.S. Trustees will file to have a case changed from a Chapter 7 to 13 if they believe the debtor filed for Chapter 7 in bad faith. They may even file an adversary proceeding to dismiss a case if they believe that the debtor abused the system.
The Adversary Proceeding Procedure
An adversary proceeding commences when one of the parties to the bankruptcy case files a complaint with the bankruptcy court. A summons is then issued and delivered to the defendant, who must file an answer within a specified time frame. Once both sides are before the judge and have stated their case, he or she will rule according to the evidence.
If you are a debtor who has had an adversary proceeding filed against you or you wish to file one in response to an abuse of your rights, contact Arnold, Wadsworth & Coggins today. We will defend or advocate for your position so that you stand the best chance of getting the discharge you need to move on with your life.