When filing for bankruptcy, whether it be Chapter 7 or Chapter 13, every client should be aware of the potential of being hauled to court to litigate issues surrounding the bankruptcy. At times the process of bankruptcy can be simple however more often the process can be complex when the opportunity to file an adversary proceeding arises. An adversary proceeding is a separate lawsuit filed within the bankruptcy case. Adversary proceedings are governed by Part VII of the Federal Rules of Bankruptcy Procedure. The process of filing an adversary is similar to filing an ordinary complaint in that a plaintiff will file a complaint with the bankruptcy court while simultaneously serving defendants and interested parties with a summons issued by the bankruptcy court and a copy of the complaint. How the case proceeds after this depends on the facts and merits of the action.
There are several different types of adversary proceedings that can filed. For example a creditor may file adversary proceedings challenging the dischargeability of particular debt or objecting to the discharge in its entirety. The bankruptcy trustee also has the ability to file an adversary proceeding against the debtor in bankruptcy when he has an issue with certain transfers of property by the debtor. The debtor also may make use of adversary proceedings in bankruptcy under certain scenarios. As discussed in earlier posts at the time of filing for bankruptcy the automatic stay goes into effect halting every creditors attempt to collect a debt. Also discussed was the discharge injunction which acts similarly to the automatic stay following the conclusion of the debtor’s bankruptcy case. If a creditor violates either of these, a debtor has the ability to file an adversary proceeding to recover damages against these overzealous creditors. What all of this means is that a debtor’s bankruptcy case may not completely shield them from all claims that arose before the filing of the bankruptcy, if a creditor successfully litigates an adversary proceeding a debtor may be on the hook for certain claims that would otherwise be dischargeable. However under the right conditions a debtor may file an adversary proceeding against an overzealous creditor and potentially recover damages.