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.