Most of the time when people file bankruptcy, it’s a straightforward proceeding. You file your case, complete your credit counseling, attend your 341 Meeting, and are on your way to financial freedom. But for various reasons, sometimes one party in the case will file an adversary proceeding. This could be you as the debtor, one of your creditors, or the court-appointed trustee.
What is an Adversary Proceeding?
An adversary proceeding is part of bankruptcy, but is assigned its own case number and will receive a separate judgment. This is when there are issues related to the bankruptcy that will not be resolved by the bankruptcy alone. The plaintiff of the adversary proceeding can file a complaint with the court, and then the defendant is served with a summons. The defendant has time to review the complaint and respond, and if they do not respond, the plaintiff’s complaint is granted by default.
Why File?
Several reasons to file an adversary proceeding are related to possible bankruptcy fraud. If you give assets, property, or money to a friend or family member prior to filing in an attempt to keep the court from taking it, the court trustee could file a fraudulent transfer adversary complaint. A creditor can also ask the court not to allow the discharge of their particular debt if they believe you committed fraud while incurring that debt. Additionally, your entire discharge could be denied if the trustee believes you committed fraud.
One common mistake that people often make before filing bankruptcy is making debt payments to one certain creditor. This is usually an honest attempt to pay off the debt, but the trustee could see this as a preferential transfer. They may file an adversary proceeding against you because that creditor was paid more than they would have been through the bankruptcy, while other creditors were ignored.
Part of the bankruptcy proceeding includes the trustee determining if property may be sold to repay your creditors. This can be complicated if you own property with someone else. In this case, the trustee could file an adversary complaint that would order the other party to agree to sell the property.
Work With a Professional
Because of the complexities of bankruptcy laws, it’s important to work with an experience professional who can ensure that your debt is discharged with as little loss of property as possible. I’ll work with you and the court to create a solid case that the trustee will easily approve. Then you can focus on moving forward and rebuilding your credit. If you have questions about bankruptcy and what it means for your long-term finances, give me a call so that we can discuss your many options.