An adversary proceeding is a separate lawsuit that takes place in the context of a bankruptcy filing. As the name suggests, there are typically two parties fighting over some issue that requires the bankruptcy judge to decide an issue in one way or another. Adversary proceedings can be initiated by the debtor, a creditor, or in some cases by the case trustee or the United States trustee.
Common examples of adversary proceedings brought by specific creditors include cases where a particular creditor does not believe that the debt owed to it should be discharged in the bankruptcy. The bankruptcy code contains exceptions to the discharge of certain debts. For example, debts in the nature of spousal maintenance or child support are not dischargeable. However, it is sometimes unclear whether a particular obligation in a divorce is in the nature of support or whether it is a property settlement (which may be dischargeable in Chapter 13 cases.) The debtor, or creditor, might ask the bankruptcy judge to resolve the issue through an adversary proceeding. Other times, a creditor might allege that the debt owed to it was procured through fraudulent means making the debt non-dischargeable. There are other circumstances where non-dischargeable debts might be alleged and it may make sense for the debtor or the creditor to get a court order making certain the debt is or is not dischargeable.
Other times, the debtor may wish to discharge debts that otherwise are not dischargeable. For example, student loans are dischargeable only in limited circumstances. Those circumstances must be proven by bringing an adversary proceeding against the lender. A debtor may also bring an adversary proceeding against a creditor who has violated the automatic stay or discharge injunction.
Finally, the case trustee may bring an adversary proceeding against the debtor or even against a creditor in some cases. For example, if the debtor was not honest in listing all of their debts and assets the trustee may ask the judge to deny the debtor’s discharge entirely. A trustee may sue a creditor to undo a transfer or payment made to that creditor shortly before the case was filed. The United States trustee may bring an adversary proceeding if a case was filed in bad faith, or is an abuse of the bankruptcy code.
Adversary proceedings are rare. Particularly if a debtor is honest and discloses fully their financial circumstances. If you have questions about adversary proceedings, or one has been filed against you in your bankruptcy, you should contact a qualified bankruptcy attorney.
Please contact McGuire Gardner, PLLC for further information regarding your bankruptcy case by visiting our website at www.mcguiregardner.com, or by calling (480) 829-9081.