Most Chapter 7 or Chapter 13 bankruptcy cases move through the process without a hitch. The debtor (the person filing the matter) submits paperwork and receives a discharge (the order that wipes out qualifying debt) without ever entering the courtroom.

But some cases involve disputes that have to be decided by a bankruptcy judge. The bankruptcy rules define two classes of litigation: adversary proceedings and contested matters. The rules and the complexity of the issues determine the category the case will fall into.

Adversary Proceeding Versus Contested Matter

The bankruptcy rules require you to file some types of disputes as an adversary proceeding. By contrast, a contested matter isn’t explicitly defined. Instead, a contested matter is merely any litigation other than an adversary proceeding brought about to resolve a bankruptcy issue.

Here’s how the two work.

Adversary Proceeding

An adversary proceeding is a lawsuit related to a bankruptcy case and involves more complex litigation than a contested matter. It’s given a separate case number and proceeds much like any other civil litigation action.

For instance, an adversary proceeding starts when a plaintiff (the person bringing the action) files a document called a complaint. The complaint includes causes of action (legal disputes) the plaintiff would like the court to resolve.

Once the plaintiff files the complaint, the plaintiff and defendant (the person sued) will likely:

• gather evidence using discovery methods
• attempt to resolve the matter informally or through alternative dispute resolution (such as mediation or a settlement conference), and
• present evidence and argument at a trial before the bankruptcy judge or before a jury.

As with other lawsuits, an appeal process is also available.

Contested Matter

Contested matters involve more straightforward issues that typically need to be resolved before the bankruptcy case can move forward (see the examples below). Also, the court can usually decide the issue without extensive evidence.

A contested matter often starts with the filing of a motion requesting that the court take some action. Discovery doesn’t occur without the court’s permission, and, if the parties can’t settle their differences, the judge will make a ruling.

Regarding time, effort, and expense, contested matters are much quicker to resolve (weeks as opposed to months or years), and cheaper.

Which Should You File?

According to Rule 7001 of the Federal Rules of Bankruptcy Procedure, you must file some matters as an adversary proceeding, including actions to:

• recover money or property from someone other than the debtor
• object to or revoke a discharged (the order that forgives qualifying debt)
• determine the dischargeability of a debt, and
• obtain an injunction (an order to stop an action).

Here’s a rule of thumb: If you’d file a case as a lawsuit in another court, you’d bring the matter as an adversary in bankruptcy court. For instance, the court typically decides contract and business disputes through the adversary proceeding process.

By contrast, a judge would resolve the following as a contested matter:

• lifting the automatic stay (the order preventing collection action)
• modifying a Chapter 13 repayment plan
• objecting to a creditor's proof of claim (the amount owed a creditor). or
• objecting to a Chapter 11 plan confirmation.

When given a choice, most people would prefer to resolve other issues through the contested matter process and avoid the full-blown litigation required by an adversary proceeding.

You can find out more in What Types of Bankruptcy Cases Must Be Filed as an Adversary Proceeding?

Which Rules of Procedure Apply?

Adversary proceedings follow a series of rules found in Part VII of the Federal Rules of Bankruptcy Procedure. These rules track and, in many cases, incorporate the Federal Rules of Civil Procedure that governs civil lawsuits in other federal courts.

You’ll look to Rule 9014 for guidance in contested matters. Rule 9014 incorporates some but not all of the Part ViI rules used in adversary proceedings. The bankruptcy judge has the authority to impose additional rules and can convert a contested matter into an adversary proceeding, if necessary.

For more information about bankruptcy law, read What Are the Differences Between the Federal Rules of Bankruptcy Procedure and the Bankruptcy Code?

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