Is your bankruptcy filing ripe for an opponent’s complaint? | Jennings, Strouss & Salmon, PLC

The automatic stay, specific to bankruptcy, generally gives leeway to the debtor who has filed for bankruptcy. This means that if there was an ongoing litigation or attempts to collect an outstanding obligation, the majority of those actions must cease subject to a new bankruptcy court order that removes the automatic stay. In a previous blog post, “Will the “return to normal” increase the number of tenants seeking redress in bankruptcy?“We’ve had a lot of discussion about automatic stay and dischargeable or non-dischargeable debt, but does filing for bankruptcy eliminate the risk of litigation after bankruptcy relief? The short answer is: it’s not a guarantee.

An adversarial proceeding (“Adversary”) is a separate legal action filed with the bankruptcy court. Similar to lawsuits that are filed outside of bankruptcy court, an adversary will have a plaintiff and a defendant. Many times an opponent’s plaintiff is a creditor suing for an exception to his debt to be discharged. However, there are other circumstances in which an opponent can be thrown. For example, a trustee may file an adversary seeking to recover (or avoid) pre-bankruptcy transfers, or a debtor may file an adversary seeking the turnover of payments to which the debtor was entitled on the date of his bankruptcy filing. .

The nature of the claims alleged against a debtor before filing for bankruptcy may provide insight into whether similar claims will be pursued in bankruptcy court. The relief provided by the Bankruptcy Code for paying off debts relies on the “honest but unhappy debtor”, also known as the “fresh start”. Therefore, if the pre-bankruptcy claims are based on fraud or conversion, it is more likely that the creditor (or plaintiff) pursuing those claims will continue to do the same in bankruptcy court. The ultimate goal being that the obligation due and owed to the obligee is exempt from discharge. In other words, if the Adversary challenging the discharge is successful, the debtor will still be liable to the obligee for the unpaid monetary obligations after the bankruptcy has closed. While creditors with dischargeable debts are enjoined (or prohibited) from pursuing collection after bankruptcy is closed.

With a few exceptions, if a creditor is notified of bankruptcy, the period during which that creditor can sue an Adversary seeking an exception of discharge begins to run. In most cases, a creditor has 60 days from the first scheduled meeting of creditors to file an opponent seeking an exception to the discharge. A common misconception is that a creditor has 60 days from the date of the meeting of creditors, but this is not the case.

Whether a creditor files an opponent, as noted above, this is a separate issue. Therefore, if a debtor has used the assistance of a lawyer to file for bankruptcy, the debtor cannot assume that the same lawyer is dealing with the adversary. This means that the debtor should be aware of the time to file a response to the opponent. The adversary will have procedural requirements similar to those in litigation outside bankruptcy court. Therefore, it is important that individuals respond quickly to claims that are alleged in an opponent. It is further recommended that if someone receives a complaint from an adversary, they promptly seek the assistance of a lawyer to help them respond and navigate both the substantive and procedural issues that arise. in an opponent.

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