In bankruptcy, an adversary proceeding is a separate lawsuit filed in connection with a bankruptcy case.
A typical bankruptcy case proceeds like an administrative proceeding, much like applying for Social Security benefits or citizenship. An applicant who meets the requirements will receive the requested benefit.
In a bankruptcy matter, the debtor (filer) is looking to discharge (wipe out) debts and the creditor wants to get paid what the debtor owes. In most bankruptcy cases, there’s no dispute between the debtor and the creditor and the case moves along predictably. The bankruptcy trustee appointed by the court to administer the case will pay creditors if the debtor has assets to do so.
Sometimes, however, a dispute must be handled by the bankruptcy judge. When it’s resolved by filing a lawsuit in the bankruptcy court, it’s called an adversary proceeding.
Some issues in a bankruptcy case are simpler than others. In such situations, the court will resolve the problem as a “contested matter.” A contested matter is one that will require a hearing and decision from the judge, but not much more.
By contrast, an adversary proceeding involves more complicated issues that will need to be handled in a regular court case. The plaintiff (complaining party) will start the case by filing a complaint. The defendant (the person being sued) will usually respond by filing an answer, and the participants will conduct discovery to develop evidence. The case will end in a settlement when possible or a trial.
A plaintiff can file any controversy in a bankruptcy case as an adversary proceeding, but the bankruptcy rules set out seven types of cases that a plaintiff must file this way. For instance, the court requires an adversary proceeding to: