Under Bankruptcy Rules, an adversary proceeding may be filed in a debtor’s bankruptcy action for certain specific reasons. Creditors may initiate adversary proceedings to determine the validity or priority of a lien, to determine the validity of a debt, to obtain an injunction, or to subordinate a claim of another creditor. The debtor in possession may institute an adversary proceeding to recover money or property for the estate. Also, a creditors’ committee may be authorized by the bankruptcy court to pursue certain actions that the debtor has failed to pursue. An adversary proceeding is a lawsuit filed within a bankruptcy case. The proceeding takes place in the bankruptcy court and is tried by the bankruptcy judge.
Definition of Adversary Proceeding
”Adversary proceeding” is defined by the Bankruptcy Rules as a proceeding before a bankruptcy judge for legal, equitable or declaratory relief that arises under applicable law. Such proceedings are governed by bankruptcy rules, which incorporate by reference, adopt in part, or adapt most of the Federal Rules of Civil Procedure. In the ordinary adversary proceeding the pleadings will consist only of a complaint and an answer.
Any of the following proceedings are considered adversary proceedings:
1. to recover money or property, except certain proceedings including those to compel the debtor to deliver property to the trustee;
2. to determine the validity, priority, or extent of a lien or other interest in property, other than a proceeding involving liens impairing debtor’s exemptions;
3. to obtain approval for the sale of both the interest of the estate and of a co-owner in property;
4. to revoke an order of confirmation of a Chapter 11, Chapter 12 or Chapter 13 plan;
5. to determine the dischargeability of a debt;
6. to obtain an injunction or other equitable relief;
7. to subordinate any allowed claim or interest, except when subordination is provided in a Chapter 9, 11, 12 or 13 plan;
8. to obtain a declaratory judgment relating to any of the foregoing; or
9. to determine a claim or cause of action removed pursuant to the United States Code.
Initiating an Adversary Proceeding
Adversary proceedings are initiated by filing a complaint with the court to resolve both federal and state law issues.
Objecting to the Discharge of a Debt
Objections in bankruptcy cases occur most often when a creditor is alleging that a debt should not be forgiven or discharged because of fraud, but it can also happen if a creditor thinks the debtor is abusing the system, has not disclosed assets, or has not fairly characterized its claim. A debtor or any creditor may file a complaint to obtain a determination of the dischargeability of any debt. In a Chapter 7, 11 or 12 case, a complaint to determine the dischargeability of any debt must be filed not later than 60 days following the first date set for the meeting of creditors held pursuant to Section 341(a). The court must give all creditors not less than 30 days notice of the time. On motion of any party, after hearing on notice, the court may for cause extend the time, but the motion must be made before the time has expired. If the creditor prevails, the debt or claim is declared to be non-dischargeable by the bankruptcy court, and the creditor may attempt to recover the debt under state laws that may apply.