Adversary Proceedings

When a person files for bankruptcy protection, a typical attorney is not prepared to handle adversary proceeding. What is an adversary? It could be summed up as a mini-lawsuit within a bankruptcy filing. This separate suit that is filed inside the actual bankruptcy case is similar to other lawsuits. It begins when a creditor or the trustee files what is called a complaint. A large number of bankruptcies sail through without any issue or adversary proceedings. Many will have typical objections or issues, but most proceed forward until completion and receive a discharge absent of an adversary proceeding.

When a person files bankruptcy and a creditor believes that they are not being treated properly, or they want to dispute the dischargeability of a debt, they can dispute it through an adversary. The trustee in the bankruptcy case could also bring their own adversary to challenge a particular debt’s dischargeability. The bankruptcy trustee could allege that a debtor incurred the debt through fraud, or that it is otherwise in a category which may not be discharged such as a student loan debt. The trustee’s office could also be seeking property which was transferred to another party before filing the bankruptcy.

When the adversary proceeding does go forward within a bankruptcy, the mini lawsuit within the bankruptcy becomes part of the case; however, it has holds its own case number. For most debtors who are in a position of needing to defend themselves in an adversary proceeding, their consumer bankruptcy attorney is not prepared to handle such a situation. On the other hand, creditors could have another attorney, but many creditors’ rights attorneys who do bankruptcy are able to handle adversary proceedings.

Common Adversary Proceedings

There exist a number reasons which could bring about an adversary within a bankruptcy. The common kinds of adversary proceedings include some of the following types:

Fraudulent transfers. If the trustee choose, they may oppose a transfer and can file an adversary alleging fraudulent transfer of an asset in cases where you have transferred property or money to some other party within a period of 2 years prior to filing the bankruptcy petition. In such cases it is necessary to hire a bankruptcy lawyer who holds extensive knowledge of how to handle such complaints. The trustee’s office must prove constructive or actual fraud for such complaints to win out in bankruptcy court.

Preferential financial transfers. A trustee in a bankruptcy case can choose to oppose a transfer which is deemed a preferential transfer through a bankruptcy adversary complaint, which also can often be known by the term “preference adversary.” This occurs in cases where you may have repaid one or more creditor an amount that exceeds $600 during a period of 90 days prior to filing the bankruptcy. In cases involving a relative, the look-back period is an entire year for cases involving a transfer or some sort of payment to a family relative. In such case, the trustee is required to prove insolvency when such transfer took place as well as that you received nothing in return for said transfer and that you paid the creditor an amount greater than they would have legally received through normal course of a Ch. 7 bankruptcy.

Lien stripping. Some jurisdictions allow what is known a lien stripping. When filing a chapter 13 repayment plan in bankruptcy, you may have a single mortgage or you may have another mortgage such as a second or even a third mortgage on a home. Filing adversary proceedings in jurisdictions that allow lien-stripping could allow you to strip junior mortgages off of property which treats these creditors subsequently in a class of unsecured creditor claims in situations where the home is worth an amount that is lower than the principle balance owed for the primary mortgage. Hiring an attorney with knowledge of such transfers will become necessary in order to accomplish this. In the Northern District of Texas, Fort Worth division, such lien-stripping is not possible as a matter of policy.