What Are Adversary Proceedings in a Bankruptcy Case?

Most bankruptcy cases go smoothly and are finalized fairly quickly without objections from creditors or the trustee. However, sometimes problems or questions arise. Those issues can result in adversary proceedings being filed during the bankruptcy.

Adversary proceedings are sometimes also referred to as bankruptcy litigation. If you're considering filing for bankruptcy, you should understand what an adversary proceeding is and what will happen if one is filed in your bankruptcy case.

Who Can File An Adversary Proceeding?

Only specific people can file an adversary proceeding. The petitioner can be the bankruptcy trustee or a creditor. You as the debtor also can file an adversary claim if a creditor violates your rights.

The trustee can file an adversary proceeding to force a creditor or another person to turn over property that person is holding for the debtor, recover money paid to a creditor shortly before the bankruptcy was filed, or recover property that was fraudulently transferred.

A creditor can file an adversary case to ask the court to declare a debt to be non-dischargeable, as well as for other reasons. A creditor might file an adversary proceeding to claim that a debt is within one of the exceptions to discharge or that you provided false information to the creditor or incurred the debt in anticipation of filing the bankruptcy.

In addition, you as the debtor can file an adversary proceeding against a creditor for violating the automatic stay or the discharge injunction. If creditors are harassing you during or after your bankruptcy case, you can file an adversary case to protect your rights. In some cases, you may also recover damages for a creditor’s misconduct.

How Do Adversary Proceedings Work?

An adversary proceeding is not part of the bankruptcy case itself. It is basically a civil lawsuit arising from your bankruptcy that involves a separate court proceeding. Unlike your bankruptcy case, where you represent yourself in the meeting of creditors, you should be represented by legal counsel if an adversary case is filed against you or if you need to file an adversary proceeding against a creditor.

When the bankruptcy trustee or a creditor files the adversary proceeding, the opposing party starts by filing a complaint or petition in the bankruptcy court. The other party is usually represented by an attorney, who files the petition and represents the petitioner throughout the process.

The complaint sets forth the claims that constitute the objections to the bankruptcy or issue that needs to be resolved. You are given the opportunity to file a response to the claim. If no response is filed, the court can enter a default judgment against you.

If you respond and challenge the complaint, both sides will have an opportunity to collect evidence. At this point, your attorney and the opposing attorney may attempt to resolve the disagreement through negotiations.

If the matter is not resolved between the parties, the court will hold a hearing. At the hearing, the petitioner’s lawyer presents evidence, which can include documents and witness testimony. Through your attorney, you will have the opportunity to present your own evidence and respond to the claims.

After the hearing is completed, the court will make a determination whether the objection is valid. Depending on the outcome, the court’s decision in the adversary proceeding can affect the result of your bankruptcy case.

In some cases, such as if a creditor is not abiding by the terms of the bankruptcy stay or discharge, you as the debtor will be the one initiating the adversary proceeding. In that case, the process is the same, except that you are the party filing the complaint.

What Are Specific Examples of Adversary Proceedings?

There are many reasons that an adversary proceeding can be filed. The U.S. Bankruptcy Code and rules require certain types of claims to be filed as adversary proceedings. To some extent, the reasons for an adversary proceeding depend on whether your bankruptcy is filed under Chapter 7Chapter 11, or Chapter 13.

Examples of the types of disputes that must or may be brought as adversary proceedings include:

  • Recovery of money or property from another person, including payments made before the bankruptcy was filed;
  • Determination of the validity, priority, or extent of a lien or other interest in property;
  • Revocation of an order of confirmation of a Chapter 11, Chapter 12, or Chapter 13 plan;
  • Determination of dischargeability of a debt, including fraudulent payments and transfers;
  • Obtaining an injunction or other equitable relief, unless the bankruptcy plan provides the relief;
  • Subordination of an allowed claim or interest, unless the bankruptcy plan provides for subordination;
  • Determination of removing a claim or cause of action to another court with jurisdiction;
  • Obtaining approval for sale of an interest of the bankruptcy estate and a co-owner of the property;
  • Objection to or revocation of a bankruptcy discharge;
  • Request by the trustee to convert a Chapter 7 case to a Chapter 13 case;
  • Action by the debtor against creditor for violating the automatic stay or discharge injunction.

Generally, if you are completely honest with your lawyer before your bankruptcy case is filed and disclose everything in your filing, you have no reason to fear that you will face an adversary proceeding. Most disputes that lead to an adversary proceeding involve some type of dishonesty or fraud committed in an effort to conceal assets that occurred before the bankruptcy was filed.

What Should I Do If an Adversary Proceeding Is Filed in My Bankruptcy Case?

If you have filed for bankruptcy and the trustee or a creditor files an adversary proceeding, you should have an attorney represent you in the adversary proceeding. If you have a lawyer handling the bankruptcy case, he or she can represent you in the adversary case. However, some attorneys who represent clients in bankruptcy filings do not also handle adversary proceedings. In that situation, your attorney will recommend a bankruptcy litigation attorney to handle the adversary proceeding. At Modestas Law Offices, we represent our clients in any adversary proceedings that arise in the course of a bankruptcy case.

If you are not using an attorney to handle your bankruptcy filing, you should contact a lawyer as soon as the adversary proceeding is filed. If you do not respond to the complaint within the required time, the bankruptcy court could enter a default judgment against you.

Having a lawyer represent you in an adversary proceeding is important for several reasons. First, the proceeding is a separate case within the bankruptcy case. It is a type of civil lawsuit and involves formal court proceedings, including a hearing.

Filing the proper documents and presenting the case in court should be handled only by an experienced bankruptcy litigation attorney. If you try to represent yourself, you risk losing the case and having judgment entered against you.

In addition, defending against an adversary proceeding involves much more than just filing documents and appearing in court. To present a defense, the facts and circumstances surrounding the situation need to be investigated and analyzed. That means collecting evidence, which must be done in accordance with court rules.

Analyzing the evidence under the legal criteria is a complex task that only a lawyer is qualified to complete. Presenting that evidence to the court also requires an attorney who knows not only the law but also courtroom process, rules, and procedures.

Finally, sometimes the dispute that led to the adversary proceeding can be resolved between the parties without having the court decide the case. Negotiations with the other party should be handled by a qualified legal representative. If you attempt to negotiate yourself, you could make statements or mistakes that will end up with you losing the adversary proceeding and harming your underlying bankruptcy case.

Talk With a Burr Ridge, Illinois Bankruptcy Attorney

Modestas Law Offices assists clients with Chapter 7 or Chapter 13 bankruptcy cases. In some situations, we also represent clients, including creditors, in bankruptcy adversary proceedings.

We serve Illinois clients in Chicago, Cook County, DuPage County, and Will County. To accommodate clients who are busy during weekdays, we are available to meet in the evening and on weekends. Contact us to schedule your initial free consultation.

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