Although I spent years working as a bankruptcy paralegal at one of the nation’s largest firm I rarely saw bankruptcy cases that involved adversary proceedings. Perhaps that is why they were always so interesting to me. Not many people have heard of an adversary hearing so let me first start by explaining what it is. An adversary proceeding is a lawsuit that is brought within a bankruptcy proceeding and based on conflicting claims, usually between the debtor (or the bankruptcy trustee) and a creditor. Adversary proceedings are governed by special procedural rules under Part VII of the Federal Rules of Bankruptcy Procedure.
So what does this mean in layman’s terms? Basically an adversary hearing starts when one of the creditors involved in an individual’s bankruptcy decides that they do not think the debt they hold should be able to be erased in the debtor’s bankruptcy. This could be for various reasons, but in most cases the claims a creditor makes against a defendant in an adversary proceeding are for fraudulent transfers (transfers of the debtor’s assets to a third party, with the intent to prevent creditors from reaching the assets to satisfy their claims).
Adversary proceedings are handled in civil court, which means that in most cases debtors hire a separate attorney or pay their bankruptcy attorney extra fees to handle their adversary proceeding. This is something that you should discuss with your bankruptcy attorney even if you do not thing that an adversary hearing could happen to you. Ultimately you have no control over which of your creditors will choose to pursue an adversary proceeding so you should be prepared either way.
Some common reasons that adversary proceedings are filed are:
1. To recover money or property
2. To determine the validity or extent of lien or other interest in property
3. To object or revoke a discharge
4. To revoke an order of confirmation of a plan (Chapter 13)
5. To determine the dischargeability of a debt
Typically an adversary is first filed by the plaintiff and the court clerk will issue a summons to alert the debtor that the paperwork has been filed. The summons will include a complaint so that the debtor will be aware of exactly what the creditor is filing the adversary case for. The adversary will be considered “open” until the Judge creates a decision, judgment, or the parties agree on a settlement.
Bankruptcy can sometimes be a complex process, but adding an adversary hearing to a bankruptcy can truly make for a confusing experience. Ask any attorney that you may consider hiring how they handle adversary proceedings and how much, if any, they would charge on top of their normal fees. The good news is that in most cases the adversary hearings only include 1 or 2 debts out of the dozens you will likely be filing on. This means that even if the adversary proceeding goes in favor of the creditor, your bankruptcy can still eliminate other debts that are causing you grief.
Many people who file bankruptcy are unaware of the fact that their case could be denied. Most debtors just assume that the court will grant them the bankruptcy they desire as long as they meet all of the eligibility requirements. This, however, is not the case. There are several reasons that your bankruptcy could be denied, and if you or someone you know is considering bankruptcy then these are reasons that you will want to know. Here are just three of the main reasons why people’s bankruptcies get denied.
- Documents – Bankruptcy revolves around the debtors financial situation, and because of this the debtor will be required to present certain documentation to their attorney’s and ultimately to the bankruptcy court. Some of the most commonly requested documents are: paycheck stubs, bank statements, mortgage info, vehicle leases, and prior year’s tax returns. The majority of the paperwork will be requested by your attorney in order to create your bankruptcy petition, but in some cases the bankruptcy court will request documents form you directly. If, for some reason, you provide incorrect or insufficient documents to the bankruptcy court they have the right to deny your case.
- Timing – One thing is for sure if you do decide to file Chapter 7 or Chapter 13 bankruptcy; you will not be the only one filing. The courts are jammed full of petitions to consider, and allowing every debtor the ability to extend deadlines would push decisions back months, if not years. In multiple instances, federal and local courts have ruled that they do not possess the authority to cure an untimely bankruptcy filing. If you fail to meet a deadline that the bankruptcy court has set for your case, then that is grounds for dismissal.
- Fraud – When you stand before the bankruptcy trustee at your required bankruptcy court appearance they will ask you simple questions regarding your case and financial situation. These questions are to ensure that no fraud has taken place. Fraud in a bankruptcy could mean neglecting to list a creditor or debt, not telling your attorney about money you have in other accounts, or not admitting to being eligible for money like an inheritance once your bankruptcy is complete. Bankruptcy fraud is taken seriously and most bankruptcy judges have no problem denying the case on those grounds. In some severe cases where fraud is proven the bankruptcy trustee has the right to make sure the debtor can never file bankruptcy on those certain debts again.
Bankruptcy dismissals and denials are not an hourly occurrence, but they are something to be mindful of nonetheless. If you are serious about using bankruptcy to become debt free then you should do everything you can to make sure it does not get denied. Stay organized, aware, and in contact with your attorney every step of the way to make sure that your bankruptcy is completed smoothly so you can finally be on your way to financial freedom.
Bankruptcy is a federal legal process presided over by specific bankruptcy judges. The judges have the power to deny bankruptcies, approve payment plans, deny creditors the right to sue, and much more. So why should someone filing bankruptcy have this knowledge? Because every person who files personal bankruptcy is required to be present at a bankruptcy hearing and speak to a bankruptcy judge.
The bankruptcy hearing is officially known as the “meeting of creditors,” but is sometimes referred to as the “341 hearing” because of the specific bankruptcy code that requires it. The hearing can last anywhere from 8-30 minutes depending on the complexity of the case and the questions that the bankruptcy judge chooses to ask. In most cases the questions directed at the debtor are simple ones: “how many vehicles do you own.” “how much do you owe on your mortgage,” and “have you ever filed bankruptcy before” are not uncommon. The hearing is primarily for the bankruptcy judge to determine whether he/she feels that the debtor has committed fraud. It is typical for bankruptcy attorneys to attend these hearings with their clients, and if not, to make sure that they are prepared.
During the hearing, as well as in all correspondence, it is imperative that the debtor show respect for the bankruptcy judge. Unfortunately, not every debtor is aware of that very important piece of advice. In a case being heard by a bankruptcy judge in St. Louis, MO the owner of a company currently in bankruptcy filed documents with the court making various personally-insulting comments aimed at the judge (referring to her as a “black-robed bigot” among other things). The bankruptcy judge ordered the company owner to come to court and explain herself or risk fines of $1,000 per allegation. Instead of appearing in court, she filed paperwork apparently reiterating the accusations which led to the judge fining her $500 per comment. On July 19, 2013 the federal court of appeals in St. Louis concluded that a federal bankruptcy judge has the “inherent power to protect the judicial system and the court’s own dignity by issuing fines for contempt of court.”
So, what’s the lesson here? First, leave your personal issues at the door and avoid personally attack judges for doing their jobs. Second, despite being well provoked to issue serious punishment, most judges do keep their cool and do their job with an even temper. The bottom line is that bankruptcy judges want the legal process to do what it is meant to do: help Americans get out of debt so that they can jumpstart their financial future. Speak with a bankruptcy attorney in your area today to learn more about which Chapter of personal bankruptcy may be right for you.