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Adversary Proceedings In Bankruptcy

When you file a lawsuit within your bankruptcy case, it is called an “adversary proceeding.” Though it will remain a part of your bankruptcy proceedings, it will be given a different case number and you might even have a different Albuquerque bankruptcy attorney. Any party to a bankruptcy proceeding may file an adversary proceeding- whether it be the bankruptcy trustee, one of your creditors, or you. An adversary proceeding’s purpose is to get some kind of relief that needs a judge’s attention and can’t otherwise be accomplished by merely filing a motion with the bankruptcy court.

How Adversary Proceedings Work

Adversary ProceedingsAn adversary proceeding begins when the suing party (referred to as the plaintiff) files a complaint with the bankruptcy court. That complaint must list the facts relevant to the lawsuit, and must ask the bankruptcy court to enter a judgment based on those facts and the applicable law. At the time of filing, the bankruptcy court issues a summons that the plaintiff must then serve on the person he or she is suing (referred to as the defendant), and also give that party a copy of the complaint.

After the defendant has received a copy of the complaint, they will have a certain amount of time to respond, depending on the rules of the particular bankruptcy court where the proceedings are taking place. In order to respond effectively and properly, the defendant has to file an answer responding to the plaintiff’s allegations. If this is not accomplished prior to the filing deadline, the court must enter a default judgment against the defendant, and the plaintiff will likely get a default judgment in his or her favor.

Common Kinds of Adversary Proceedings

There are several reasons for filing an adversary proceeding. The most common reasons include:

Preferential transfers: A bankruptcy trustee may file an adversary complaint for preferential transfer, also referred to as a preference adversary, if you paid back any of your debts more than $600 during the 90 days before filing for bankruptcy, or during the year before filing if you were paying a relative. To succeed on the complaint, the trustee will also need to prove that you were insolvent when the transfer was made to the other party, that you received nothing in exchange, and that the transfer itself ended up giving that creditor more than the creditor would have gotten when you filed for Chapter 7 bankruptcy.

A fraudulent transfer: If you transfer money or property to someone else within the two years (and up to four years under New Mexico law) before you file for bankruptcy, a bankruptcy trustee may file an adversary proceeding for a fraudulent transfer. The trustee would need to prove that actual fraud occurred, or prove constructive fraud, in order to succeed on the adversary proceeding.

Dischargeability of a debt: One of your creditors may file an adversary proceeding against you and demand that the court not discharge your debt to that particular creditor because the creditor alleges that you fraudulently incurred the debt either by constructive fraud or actual fraud. Debtors that incurred credit card debt for luxury items within the 90 days before the bankruptcy filing are a good target for a nondischareability action.

Selling property jointly owned by a debtor: A bankruptcy trustee has a duty to sell any of your non-exempt property and give the proceeds to your creditors. If you owned property jointly with another individual, the bankruptcy trustee may file an adversary proceeding against you and ask that the court require that you split apart your interests in the property and force the other owner to sell the property.

Stripping Liens: If you have multiple home mortgages and you file for Chapter 13 bankruptcy, you may file an adversary complaint to strip the second or third mortgages from your property and have them treated as unsecured loans (for more information see our article about lien stripping in Chapter 13). Provided that your home is worth less than what you owe on the first mortgage.

Objecting to discharge: Several parties, including one or more of your creditors, the bankruptcy trustee, or the Office of the United States Trustee may initiate an adversary proceeding and ask that the court deny your whole discharge. They can do so by alleging that you engaged in fraud, that you failed to abide by the court’s orders, or a variety of other reasons; if you have a Trustee objecting to your discharge you should immediate contact an attorney, if you don’t already have one.