Adversary Proceeding Vs. Contested Bankruptcy

The following article covers:

• The difference between adversary proceedings and contested matters in a bankruptcy case.
• The basis and validity of an adversary proceeding and the potential consequences of filing a frivolous one.
• What debtors can do if a creditor files for an adversary proceeding and the possibility of such a proceeding continuing after a bankruptcy case is filed.

What Is The Difference Between Adversary Proceedings And Contested Matters In A Bankruptcy Case?

A contested matter in a bankruptcy case is a motion practice, which occurs when a party in interest, such as the debtor, the trustee, or a creditor, files a motion asking the court to do something. Motions have limited remedies and cannot address issues such as avoiding a transfer or forcing someone to give property to the estate.

In contrast, adversary proceedings involve filing a complaint and serving a summons to the other party, who must then defend the case. Adversary proceedings can address issues such as fraudulent transfers, violations of the automatic stay, and other wrongful actions.

Does Filing An Advisory Proceeding Violates Automatic Stay And What Is The Basis For Adversary Proceeding?

Filing an adversary proceeding does not violate the automatic stay unless it is done for the purpose of harassing or abusing the debtor.

Adversary proceedings must have a valid cause of action, such as fraudulent transfers, hiding assets, paying too much money to one creditor, or violating the automatic stay. If an adversary proceeding is deemed frivolous, sanctions can be pursued under federal code 9011 in the bankruptcy code Rule 11.

What Can A Debtor Do If A Creditor Files For An Adversary Proceeding?

If a creditor files an adversary proceeding against a debtor, the debtor should reach out to an attorney who specializes in bankruptcy litigation. The debtor’s existing attorney may be able to help or provide a referral. It is important to take the matter seriously and seek appropriate legal representation to avoid potential negative consequences, including criminal charges.

Is It Possible The Adversary Proceeding Or Adversary Case Will Still Be Going On After My Bankruptcy Case Is Filed?

It is possible for an adversary proceeding to continue even after a bankruptcy case is filed. In a Chapter 7 case, it is possible to receive a discharge while the adversary proceeding is still pending. However, the case will remain open until the trustee has a chance to liquidate the asset.

The bankruptcy court may also stop the discharge of a case if an adversary proceeding is pending and could change the debtor’s ability to receive a discharge. In some cases, a debtor’s bankruptcy case may be reopened to address new issues or assets that were not disclosed during the original bankruptcy proceedings.

So, They Had To File For Bankruptcy Again?

Not necessarily. While it may seem alarming, a bankruptcy case being reopened does not necessarily mean that you have to file for bankruptcy again. In fact, there are several reasons why a bankruptcy case may be reopened, such as:

• An undisclosed asset was found: If an asset that was not previously disclosed is found after the bankruptcy case has been closed, the case may be reopened. This is one of the most common reasons why bankruptcy cases are reopened.
• False information was discovered: If false information or a lie is discovered in the bankruptcy papers, the case may be reopened to reevaluate the situation.
• Adversary proceedings: Adversary proceedings are legal disputes that arise during a bankruptcy case. While they are relatively rare, quite a few of them are reopened bankruptcy cases because something was discovered later down the road.

For more information on Adversary Proceeding Vs. Contested Bankruptcy, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (847) 440-5998 today.