Contested Matters & Adversary Proceedings

Contested Matters & Adversary Proceedings

In bankruptcy court disputed matters are either classified as “contested matters” or “adversary proceedings”.  A contested matter commonly arises in disputed motions.  Whereas adversary proceedings largely track traditional civil litigation (i.e., Complaint, Answer, Trial).

An adversary proceeding includes the following types of legal issues: (1) to recover money or property; (2) to determine the validity, priority, or extent of a lien; (3) to obtain approval for the sale of joint interests in property; (4) to object to or revoke a discharge; (5) to revoke an order of confirmation; (6) to determine the dischargeability of a debt; (7) to obtain an injunction or other equitable relief; (8) to subordinate a claim; (9) to obtain a declaratory judgment pertaining to the former; or (10) to determine a cause of action removed to the bankruptcy court.

Unlike traditional litigation however service of an adversary proceeding can be accomplished by either personal service or first class mail as opposed to personal service required under state law.  This is a particularly useful tool of a bankruptcy litigator and its results are oftentimes perilous for those who choose not to respond.

Moreover an adversary proceeding, because it is similar to traditional litigation, generally provide a bit more due process to the litigants.  For example, there is an opportunity to dismiss a complaint without further evidentiary proceedings, there are counterclaims which may not be available in a contested matter scenario, the deadlines and procedural requirements are not as robust in contested matters, many of the usual Federal Rules of Civil Procedure are inapplicable in a contested matter, and an Adversary Proceeding brings with it its own case number and does not risk the chaos that can occur in some underlying bankruptcy cases.

However a contested matter is typically resolved much quicker than an adversary proceeding.  Moreover in almost all situations the due process afforded to the parties is sufficient for the issues at hand.  This leads to the end result being a faster resolution at smaller price.  Almost always something that everyone agrees should occur.

One note of caution is that there are local rules which govern both adversary proceedings and contested matters.  For example as of the date of this writing Colorado limited the number of depositions to three per party and one interrogatories to one set of 30 single questions.  However if the parties can demonstrate a need to exceed these limitations it is very unlikely a judge will keep the restrictions.

All things considered certain things must occur in the context of an adversary proceeding and others can occur in either an adversary or a contested matter.  However many of the distinctions are immaterial, especially in instances where the issues are relatively straightforward.   Before the determination is made under which route to take an experienced bankruptcy attorney should be consulted.