Bankruptcy Adversary Proceedings Defined

An adversary proceeding is a lawsuit filed in a bankruptcy case by a creditor, trustee, or the debtor. Filing or defending against an adversary proceeding requires knowledge of the Bankruptcy Code, Federal Rules of Civil Procedure and the Local Bankruptcy Rules for the District of Colorado.

Rule 7001 of the Federal Rules of Bankruptcy Procedure lists the types of adversary proceedings that may be filed. These include excepting debts from discharge, reversing fraudulently transferred property, discharging student loan debt, and protecting a debtor’s discharge.

Creditor Adversary Proceeding

Creditors often file adversary proceeding in order to argue that a debt should not be discharged in the bankruptcy. Debts that are exceptions to discharge are specifically listed in the Bankruptcy Code under 11 U.S.C. §523. One of the most common adversary proceedings filed by a creditor is to request the court except a debt from discharge, because a debtor borrowed money and had no intention of paying the money back.

An example of borrowing money with no intention to pay it back would be a person who maxed out a credit card right before filing bankruptcy and never intended to make any payments. An intentional action such as this may be considered fraudulent and, therefore, the debt may not be discharged.

However, the creditor must file an adversary proceeding and prove there was no intent to pay back the money when it was borrowed. The judge may then determine that the debt is nondischargeable and must be paid back.

In the alternative, maxing out a credit card without making payments is not necessarily a fraudulent act on its own. For example, a person could have used all of their credit, been involved in an unfortunate accident, and was unable to make payments. On the surface the facts are the same, credit was maxed out and payments were not made.

Circumstances are often unique in each case and may result in a different outcome. Properly expressing the facts to the court is an important aspect of bringing or defending an adversary proceeding and a good reason to use an experienced bankruptcy attorney.

 Trustee Adversary Proceeding

Trustees often file adversary proceeding to argue that a debtor should not receive a discharge as to all debts in their bankruptcy or to obtain property that was fraudulently transferred. The bankruptcy law on objection or revocation of discharge and fraudulent transfers can be found in the Bankruptcy Code under 11 U.S.C. §727, §1328, and §548 respectively.

One of the most common adversary proceedings filed by a trustee is to revoke a discharge when false information has been provided in the bankruptcy schedules. An example of false information being provided would be the failure of a debtor to list all of their property in the bankruptcy schedules. The trustee may then file an adversary proceeding determine that the failure to list the property was intentional and was meant to undermine the rights of creditors. A bankruptcy judge would then hear the evidence and decide whether the discharge should be revoked.

In regards to fraudulent transfers, a common adversary proceeding is requesting the return of property fraudulently gifted away by the debtor before their case was filed. An example would be gifting property to a relative or spouse before the filing of the bankruptcy. The trustee may file an adversary to have the property returned and properly handled within the bankruptcy case.

As stated above, the facts in each of these situations may be unique. Both creditors and debtors may have important rights they may want to protect in a proceeding brought by the trustee. A bankruptcy attorney with experience in adversary proceedings can help parties properly navigate these complicated matters.

Debtor Adversary Proceeding

Debtors often file an adversary proceeding in order to determine the dischargeability of a debt or to protect their bankruptcy discharge from a harassing creditor. The dischargeability of debt is discussed in the Bankruptcy Code under 11 U.S.C. §523 and the protection of the bankruptcy discharge is stated in 11 U.S.C. §524.

One of the most common adversary proceedings to decide dischargeability of a debt is to determine whether student loans are dischargeable. In order to discharge student loans the debtor generally must prove a serious physical or mental health problem that would keep the debtor from paying the debt back. This argument generally requires expert testimony, including psychologists or doctors.

An example of a violation of the discharge injunction is when a creditor tries to collect a discharged debt. For example, when a creditor places the discharged debt in collection after the bankruptcy discharge has entered. This illegal act can be stopped through an adversary proceeding and may result in damages for the debtor.

Filing a case to have student loans discharged or to stop a discharged creditor from requesting payment require the debtor to provide hard evidence to prove their case. It is important that the evidence is solid and established before the case is filed. An experienced bankruptcy attorney understands these priorities and increases the probability of success.

File or Defend Against an Adversary Proceeding

Are you considering filing an adversary proceeding or did you file bankruptcy and are now faced with an adversary proceeding? Whether you are a creditor determining if you should file an adversary or a debtor who needs help defending against an adversary proceeding, at Cohen and Cohen, P.C., we can help you understand your rights, make important legal distinctions for better decisions, and provide professional representation in your adversary proceeding.

Speak to the bankruptcy attorneys at Cohen & Cohen, P.C., to see how our experience representing creditors, trustees, and debtors can help with your adversary proceeding.

To schedule an initial consultation to review your case with a Denver Bankruptcy Attorney at our convenient central Denver location contact us online or call 303-933-4529.