What is an Adversary Proceeding?
An adversary proceeding is a bankruptcy proceeding. This procedure is a separate lawsuit filed within the bankruptcy case. Similar to most lawsuits, it starts when a creditor, bankruptcy trustee, or individual files a complaint. Macco Law Group LLP Long Island Bankruptcy Law suggests hiring someone who specializes in assisting their clients with adversary and bankruptcy procedures.
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Adversary Proceeding Law
If a party declares bankruptcy, creditors may commence an adversary proceeding to prevent specific debts from being discharged. Adversary proceedings are governed by Federal Rules of Bankruptcy Procedure Rule 3007 and Rules 7001-7087.
Once an adversarial proceeding has begun, a court may refuse to discharge debts once the creditor demonstrates that those debts are the result of the debtor’s fraud. A court can also refuse to discharge a debt that is intended to cause willful and malicious injury to another or their property.
A debt incurred due to fines or penalties imposed by the government can also be grounds for an adversary proceeding in Long Island. Debts greater than $500 incurred from the purchases of luxury items/services are generally presumed to be non-dischargeable.
Adversary Proceedings Clarified
Adversary proceedings are rare in consumer bankruptcy proceedings. This is often because they are complicated and only necessary when a fundamental disagreement takes place.
Adversary proceedings can be filed by any party engaged in the ongoing bankruptcy case.
What Takes Place in an Adversary Proceeding?
An adversary proceeding often feels like a trial within a trial. It begins when the plaintiff files a complaint with the bankruptcy court. Those involved can compile a list of grievances to present in court. Witnesses can be called if necessary. When the courts find that the allegations are worthy of further investigation, the bankruptcy court will issue a summons to the defendant.
Local bankruptcy laws will determine what happens next after the complaint is received. In most cases, the defendant has a defined number of days to respond to the allegations and file a response. If the defendant’s response exceeds that deadline, the bankruptcy court may offer the plaintiff a default judgment.
If you are currently negotiating the terms of your bankruptcy, and have received a summons for an adversary hearing, contact an experienced bankruptcy attorney in Long Island. A seasoned bankruptcy attorney can help you get the most accurate information regarding your case.
Types of Adversary Proceedings
Adversary claims vary to different degrees. Each adversary proceeding case is different, but here is a list of the most common types of adversary proceedings:
Motion for Relief from Stay
A motion for relief from stay is filed during a pending Chapter 13 bankruptcy case when the mortgage holder wants to proceed with foreclosure. The creditor petitions the court to lift the automatic stay so they can proceed with collections. The outcome will depend on whether the homeowner desires to save their property with Chapter 13 or surrender it.
Objection to Discharge
This form of adversary proceeding occurs when there is proof that a bankruptcy filer may attempt to commit fraud. A trustee can present the court with evidence to dispute the debtor’s discharge of debt. If the lender successfully proves the debtor’s failure to comply with bankruptcy guidelines, the debt in question can be deemed non-dischargeable.
Objection to Exemption
Most personal property is protected during a chapter 7 proceeding. However, if a trustee disagrees with the debtor’s protected assets, they have the right to file an adversary proceeding. A bankruptcy court will decide whether that asset is protected under Chapter 7.
Fraudulent Transfers
When there is a suspicion of fraudulent transfers on the debtor’s behalf, then the trustee has grounds to file adversary proceedings. Constructive fraudulent transfers may occur when money or ownership of an asset changes hands within two years before the debtor files for bankruptcy.
