What is an Adversary Proceeding? Your Questions, Answered

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Stanley Tate

#1 Student Loan Lawyer

Updated on October 6, 2022

When a debtor files bankruptcy, they’ll have an opportunity to get rid of their debts and get a fresh start. However, there are times when a creditor can challenge whether the debtor should be allowed to discharge a particular debt. And there are other times when the debtor wants to get rid of debt they usually couldn’t get rid of. An adversary proceeding is a tool that a creditor, debtor, bankruptcy trustee, or third party can use to determine the dischargeability of a debt after a debtor files a bankruptcy petition

Here’s what you need to know about adversary proceedings in bankruptcy.

What is an adversary proceeding in bankruptcy court?

An adversary proceeding is a lawsuit filed to contest the dischargeability of a debt in an underlying bankruptcy case. These cases can involve state law, federal law, and bankruptcy law. The AP starts when a plaintiff files a complaint against a defendant. The defendant will have an opportunity to answer. If they don’t, then a default judgment can be entered against them. But if they do answer, litigation continues, and the parties will typically negotiate a settlement, or the bankruptcy judge will decide a winner.

The different types of adversary proceedings under bankruptcy law are listed under Federal Rules of Bankruptcy Procedure 7001. (The bankruptcy procedural rules incorporate the Federal Rules of Civil Procedure into bankruptcy litigation.)

Is an adversary proceeding a contested matter?

Any dispute between two parties that doesn’t qualify as an adversary proceeding under the Bankruptcy Code is a contested matter. Any party in interest (debtor, creditor, trustee, etc.) can file a motion requesting relief of some sort. When the responding party objects to the motion, the matter is considered contested.

Like an adversary proceeding, a contested matter can involve discovery, depositions, trials, etc.

Types of Adversary Proceedings

Bankruptcy law provides for different types of adversary proceedings. (11 U.S.C. § 523) Here’s a list of the more common APs filed.

  • Student loan discharge. Borrowers can file a student loan adversary proceeding seeking to discharge their student loan due to undue hardship by showing they can’t maintain a minimal standard of living while repaying their debt. Most bankruptcy courts use the Brunner Test to determine if your circumstances warrant an undue hardship discharge.

  • Violation of automatic stay. Creditors are prohibited from trying to collect from a debtor after they file bankruptcy (e.g, foreclosure of real estate, repossession, etc.). Similarly, creditors aren’t allowed to collect for a debt that was discharged.

  • Fraudulent transfer. Trustees will try to recover money or property they believe you fraudulently transferred within two years before filing bankruptcy.

  • Preferential transfer. Trustees will try to recover money from creditors you paid more than $600 within 90 days before filing bankruptcy or within a year if you paid back a relative or friend.

  • Lien stripping. Homeowners who file a chapter 13 will try to strip (remove) second, third, fourth, etc., mortgages from their property and treat those mortgages as unsecured claims.

  • Dischargeability of a debt. Creditors can argue that debt is non-dischargeable if they believe you incurred the debt fraudulently.

  • Sale of joint property. Trustees can try to sell nonexempt joint-property you own with someone else to repay your creditors.

  • Objection to discharge. Creditors, trustees, and the United States Trustee will try to stop you from getting a discharge if you committed fraud or failed to comply with court orders.

How to file an adversary proceeding

You start an adversary proceeding by filing an adversary complaint, which is a formal, written statement where you lay out the facts and ask the court for the relief you’re entitled to under the law. Although a lot of complaints look similar, there’s no set form to follow. However, there are usually 5 things you must include in your complaint:

  1. Caption. A caption that identifies the court, bankruptcy case and case number, and parties to the adversary.

  2. Parties. A statement identifying the name and location of the parties involved in the AP and a description of the parties’ relationship given rise to the complaint.

  3. Jurisdiction. The reason why the AP can be filed in bankruptcy court.

  4. Allegations. The allegations/claims you’re making against the defendant.

  5. Relief. The relief you’re seeking from the court. For example, in a complaint to discharge student loan debt, the borrower can argue they shouldn’t be required to pay their student loan creditors because they can’t pay the loans and maintain a minimal standard of living.

In addition to the complaint, you’ll need to submit the Adversary Proceeding Cover Sheet and follow whatever local rules the bankruptcy court has.

How to respond to an adversary proceeding

A defendant can respond to an adversary proceeding by filing an answer or a motion (e.g., a motion to dismiss the complaint) within 30 days from the date of the summons. If the defendant fails to file a responsive pleading, the bankruptcy judge can enter a default judgment against the defendant.

What happens if you lose an adversary proceeding?

Depending on the type of adversary proceeding, losing could mean that you still owe your lender for a debt. For instance, you won’t be able to strip a junior mortgage, stop making student loan payments, etc. In some cases, losing an adversary won’t stop the bankruptcy process from moving forward. But in others, a loss could mean you’re not entitled to a discharge in your chapter 7 bankruptcy or chapter 13 bankruptcy case.

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