A is for Adversary Proceeding in the Bankruptcy Alphabet

What is an adversary proceeding? Well, an adversary proceeding in bankruptcy is basically a lawsuit filed within a bankruptcy proceeding. It can be filed by just about anyone, at least anyone with standing to file one, including the person who filed the bankruptcy (the debtor), the Chapter 7 or Chapter 13 trustee, a creditor, the spouse or former spouse of the debtor, or anyone else that may have a legal claim against the debtor or the debtor’s property.

Adversary proceedings are not common in bankruptcies, but they do happen, so every debtor should have an idea about what one is and what happens when one is filed.

Adversary Proceeding to Determine Dischargeability of a Debt

One of the main types of adversary proceedings filed is an action to determine whether a debt is dischargeable.  Obtaining a discharge of debt, or to eliminate debt, typically is the goal or one of the goals of a debtor who files a bankruptcy proceeding; however, some types of debts are not dischargeable, including ones that may have been obtained under fraudulent circumstances such as false misrepresentation, false pretenses, or actual fraud.  See 11 U.S.C. Section 523(a)(2).  So, if one of your creditors believes they were defrauded, they may consider filing an adversary proceeding in your case to have its debt determined nondischargeable.  If you think one of your creditors may file an adversary proceeding regarding the dischargeability of a debt, let your bankruptcy attorney know so that you both can be prepared for it.

Adversary Proceeding to “Cramdown” a Secured Debt

Another more common type of adversary proceeding is one that your bankruptcy attorney might file to “cramdown” a secured debt such as a mortgage or a loan taken against personal property owned by the debtor.  Mortgages and secured loans can be crammed down under very specific circumstances.  You can read more about cramdowns in Colorado Springs bankruptcy attorney Bob Doig’s blog article.  The complaint filed by the debtor in a cramdown action usually seeks to determine the value of the collateral securing the loan and voiding the lien to the extent that the loan is not secured (the amount owed is in excess of the value of the property).

There are other types of adversary proceedings that can be brought so make sure you share everything about your financial life with your bankruptcy attorney so that he or she may determine whether an adversary proceeding may be filed in your case.

Procedural Aspects of Adversary Proceedings

Procedurally, adversary proceedings are very similar to a civil lawsuit in a state or Federal court.  The filing party known as the plaintiff files a complaint and is required to serve it upon the defendant.  The defendant is given an opportunity to defend by filing an answer or a dispositive motion such as a motion to dismiss for failure to state a claim or for some other reason.  If the defendant does not file anything, the plaintiff can seek a default judgment against the defendant.  If the defendant chooses to defend, a trial will be held if a settlement is not reached first.

Because adversary proceedings are their own separate proceedings from the bankruptcy case, attorneys may require a debtor to enter into a new fee agreement to either bring or defend an adversary proceeding.  If you think it is possible an adversary proceeding may be brought in your case, it is best to alert your bankruptcy lawyer immediately so you can be well informed and know what to expect.

If you are in the Philadelphia area and looking for a competent and compassionate bankruptcy lawyer to help you find out your options, please contact the Philadelphia bankruptcy attorneys at  Coleman & Kempinski P.C.Kimberly Coleman and Ray Kempinski, for a FREE CONSULTATION.

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