Adversary Proceedings in Bankruptcy

Learn about adversary proceedings in bankruptcy.

An adversary proceeding in bankruptcy is a lawsuit filed within your bankruptcy case. While it remains a part of your bankruptcy case, it has its own separate case number, and you may have a different attorney. Any party can file an adversary proceeding in a bankruptcy -- the trustee, a creditor, or you. The purpose of an adversary proceeding is to obtain some form of relief that requires a judge's attention and cannot be accomplished through a court motion.

How Adversary Proceedings Work

An adversary proceeding starts when the person who is suing (the plaintiff) files a complaint with the bankruptcy court. The complaint lists the facts that pertain to the lawsuit and asks the court to enter a judgment based on the facts and the law. When the plaintiff files the complaint, the court will issue a summons, which the plaintiff must serve upon the person being sued (the defendant) along with a copy of the complaint.

Once the defendant receives the complaint, he or she has a certain number of days to respond, depending on the local rules of the bankruptcy court. To respond, the defendant must file an answer, which responds to the allegations in the complaint. If the defendant does not file an answer on or before the deadline, the court will enter a default, and the plaintiff can obtain a default judgment.

Common Types of Adversary Proceedings

There are multiple reasons to file an adversary proceeding. The most common types include:

Fraudulent transfers. The bankruptcy trustee can file a fraudulent transfer adversary complaint if you transfer any money or property to another within two years before filing your bankruptcy, if the trustee can prove either actual fraud or constructive fraud.

Preferential transfers. The bankruptcy trustee can file a preferential transfer adversary complaint, also known as a preference adversary, if you repaid any of your creditors more than $600 within 90 days before you filed bankruptcy (or one year if you paid back a relative). The trustee must also prove that you were insolvent at the time of the transfer, that you did not receive anything in return and that the transfer gave the creditor more than it would have received in a Chapter 7. (Learn more about prebankruptcy payments or transfers to creditors.)

Lien stripping. If you file a Chapter 13 bankruptcy and you have more than one mortgage on your house, you can file an adversary proceeding to strip the junior mortgages from your property and treat them as unsecured claims as long as your house is worth less than the balance due on the first mortgage. (For articles on lien stripping, see Your Home in Chapter 13.)

Dischargeability of debt. A creditor can file an adversary complaint requesting that the court not discharge its debt because it alleges that you incurred the debt fraudulently, either by actual fraud or constructive fraud.

Sale of property jointly owned by the debtor. The trustee's duties include selling any nonexempt property for the benefit of your creditors. (Learn about exemptions and find the exemptions in your state in our Bankruptcy Exemptions area.) If you own property jointly with someone else, the trustee can file an adversary complaint to sever (split apart) your interests and force the co-owner into selling the property.

Objection to discharge. Your creditors, the trustee, or the Office of the United States Trustee can file an adversary complaint to deny your entire discharge by alleging that you have committed fraud or that you have failed to comply with court orders.

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