Understanding Adversary Proceedings In Bankruptcy

In this article, you can learn:

• Some of the common reasons bankruptcy cases end up in litigation.
• The deadlines for filing an adversary proceeding, and what happens if it is filed late.
• How your bankruptcy adversary proceeding can be resolved without going into litigation.

What Is An Adversary Proceeding In Bankruptcy And Why Are They Filed?

If you’re going through bankruptcy, you may have heard the term ‘adversary proceeding.’ You might be curious about what this means and how it could affect you. In bankruptcy, creditors can file an adversary proceeding, or bankruptcy lawsuit, against you for many different reasons.

One common adversary proceeding that is filed is for non-dischargeability debt. The question is not whether you owe money, but whether the money you owe is dischargeable or not.

If the debt was incurred because of a breach of fiduciary duty, that debt might ultimately be deemed non-dischargeable. If a debt was incurred without the intent or ability to repay, that debt may also be non-dischargeable. These are lawsuits within the bankruptcy proceeding that seek certain rights and remedies.

What Are Some Common Reasons Bankruptcy Cases End Up In Litigation Or In Advisory Proceedings?

The most common reason individual bankruptcy cases end up in litigation is credit card debt that was incurred shortly before the filing of the bankruptcy. It could also be caused by transfers of properties with equity, or other real or personal property, right before the filing the bankruptcy.

This creates problems of fraudulent conveyance, which is a conveyance to avoid the reach of creditors. The adversary proceedings would be filed to claw back the property and try to redistribute it.

When Must The Bankruptcy Adversary Proceeding Be Filed?

There are statutory deadlines to file an adversary proceeding. A deadline is set forth in the 341 notice and meeting of creditors and must be timely filed. The deadline is 60 days from the date first set for the meeting recorder, approximately 90 days from the date it was filed.

If it is filed even one day late, it will generally be disallowed. A motion would be filed to not allow that lawsuit to go forward in a chapter 7 proceeding.
What Are The Steps In A Bankruptcy Adversary Proceeding?

Bankruptcy adversary proceedings involve a lawsuit, and every venue might have different procedures. Generally, a case is filed and a complaint served.

Once the complaint is served, there’s a case management conference that is set. From there, the judge sets deadlines — deadlines for discovery cutoffs, deadlines for a motion, and deadlines for trial.

Can A Bankruptcy Adversary Proceeding Be Settled Without Going Into Litigation?

If you’re facing a bankruptcy adversary proceeding, you should know that it can be settled without going into litigation. Most adversary proceedings will settle through negotiations between councils.

Alternatively, they can be settled through a Bankruptcy Dispute Resolution Program (BDRP). This is similar to mediation and is used here in the northern district of California.

The mediators are typically attorneys that volunteer their time for a few hours, or charge at a reduced rate. They act as a mediator and attempt to dissolve your dispute.

These cases will frequently result in a settlement after going through the BDRP process. Usually, these cases are much, much less expensive. In addition, they often obtain a result that satisfies both parties without the risks or expenses of trial.

For more information on An Adversary Proceeding In Bankruptcy, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (408) 295-5595 today.