Bankruptcy is generally a non-adversary proceeding that focuses on debt relief and a fresh start. The automatic stay of a bankruptcy will put a stop to court cases and other legal actions that creditors may have started to collect debts, repossess or foreclose on property, or garnish wages.
In some bankruptcy cases, creditors may feel compelled to protect their rights by initiating adversary proceedings in court.
Adversary proceedings are separate lawsuits filed within the course of a bankruptcy case, typically about the dischargeability of a debt, objections to the discharge of a debt, or an attempt to recover money or property.
If you need help with filing for bankruptcy, please call Stone Rose Law at (480) 739-2448.
In this blog post, we examine some of the more common types of adversary proceedings that may arise in a bankruptcy case in Arizona.
When you file your documentation to begin the bankruptcy process, you make certain declarations and representations about your debts and assets. This documentation forms the foundation on which the bankruptcy court and the bankruptcy trustee will work to settle secured and unsecured creditor claims against your bankruptcy estate.
However, disagreements or uncertainties can arise regarding issues such as which types of debts are dischargeable, what assets should be included in the bankruptcy estate, which creditor has priority over others, or regarding the fairness of a debt repayment plan.
If these kinds of matters cannot be resolved informally, an adversary proceeding can be needed to formally decide them.
Bankruptcy judges only have authority to rule on issues related to bankruptcy. These are known as core proceedings in your main bankruptcy case. Bankruptcy courts may also hear “non-core” matters with party consent under 28 U.S.C. § 157(c).
For example, a bankruptcy judge cannot grant a divorce to a married couple, even when the couple has debts and assets that are part of the bankruptcy case.
Part VII of the Federal Rules of Bankruptcy Procedure and the Federal Rules of Civil Procedure provide for bankruptcy adversary proceedings. These are separate lawsuits filed within the context of a bankruptcy case.
An adversary proceeding begins with the filing of a complaint in court, which leads to a unique case with a separate case number from that of the bankruptcy case.
Rule 7001 of the Federal Rules of Bankruptcy Procedure lists some of the common types of disputes that must be filed as adversary proceedings. These include:
Examples of adversary proceedings include:
The bankruptcy trustee, a creditor, or you as the debtor can file adversary proceedings. The bankruptcy trustee files an objection to discharge under Section 727 of the Bankruptcy Code, while a creditor usually brings a non-dischargeability action under Section 523.
For example, if the trustee believes you should not be entitled to a discharge, the trustee will file a written complaint with the court and explain to the judge why you should not receive a bankruptcy discharge. Reasons why the trustee may object to a bankruptcy discharge include:
After the trustee files the objection, you can respond and explain why you deserve a discharge to the court. The court will then hold a trial and allow you and the trustee to present your sides of the argument before deciding whether to grant or deny your discharge.
Multiple adversary proceedings can be filed in connection with the same bankruptcy case. Adversary proceedings can address claims connected with federal or state laws. The only limitation on these actions is that they must have some bearing on the liabilities or assets of the debtor, or the debtor’s discharge.
Adversary proceedings connected with a bankruptcy are the same as almost any other adversary proceeding in civil court.
The party initiating the adversary proceeding files a formal complaint with the bankruptcy court. The complaint pleadings outline the basis of the dispute and the relief sought.
After the complaint is filed, the plaintiff must serve the defendant or defendants with a copy of the complaint and a summons.
The defendant has a period to file an answer or motion to dismiss the complaint.
Both sides to the case engage in gathering evidence, taking depositions, and exchanging relevant documents. Discovery takes place in parallel with settlement negotiations, which can include mediation.
If settlement negotiations fail, the case proceeds to trial. Both sides present evidence and arguments to the bankruptcy judge, who then issues a ruling. One distinguishing feature of bankruptcy adversary proceedings is that, generally, there is no right to a jury trial unless it is required by statute or protected by constitutional rights.
If either party disagrees with the court’s decision, they have the right to appeal to a higher court.
Not all disputes that may arise in connection with a bankruptcy case require an adversary proceeding complaint to resolve.
Federal Rules of Bankruptcy Rule 9014 provides for contested matters that do not require a separate adversary proceeding.
In a contested matter, the bankruptcy judge can make a ruling based on a motion by a party. For example, a contested matter might arise when a debtor seeks to modify a Chapter 13 repayment plan, a creditor seeks to lift the automatic stay, or a party objects to a creditor’s proof of claim.
An experienced Arizona bankruptcy attorney can help you know which kinds of disagreements or disputes are contested matters and which are subject to adversary proceedings.
Adversary proceedings and procedures can complicate and prolong your bankruptcy case. They require additional legal preparation, negotiations, and court appearances. These can increase the cost of processing the bankruptcy and add to your stress.
To speak with an experienced Arizona bankruptcy lawyer for assistance with bankruptcy, please contact Stone Rose Law at (480) 739-2448 or use our online contact form to schedule a complimentary consultation.
