A bankruptcy adversary proceeding is actually a separate lawsuit that has been filed within the bankruptcy case. This starts like any other lawsuit when someone files a complaint. This someone can be you, the creditor or the bankruptcy trustee.
There are quite a few bankruptcy cases that go through both completion and discharge without any adversary proceedings. However, this might not be the case with others.
This adversary proceeding might be brought forth to challenge the dischargeability of the particular debt with the allegation that you incurred it through fraud. It might also be so that the trustee seeks to regain a particular property that you sold or transferred to someone else prior to bankruptcy. You also have the right to bring on an adversary proceeding.
The main reasons for a bankruptcy adversary proceeding
There are certain primary reasons due to which an adversary proceeding essentially takes place. Some of them are as follows –
- Violation of automatic stay protections: As a debtor you can bring on an adversary proceeding. This would be against the creditors for violating the automatic stay protections. This is all the more applicable when the creditors pursue collection remedies against you in spite of the prohibitions imposed by the bankruptcy court.
- Seeking hardship discharges: Seeking hardship discharges from student loans and attempting to strip, avoid, avoid or extinguish liens provides enough reason for the adversary proceeding to be undertaken.
- Protection of interests: Trustees are mostly known to file adversary proceedings against debtors to protect their interests. Apart from that, a trustee can possibly file an adversary proceeding against creditors. This is done mostly to avoid preferences or fraudulent transfers.
- Seeking an exemption: Creditors can also bring adversary proceedings to seek an exemption of the debt you owe them from your pending discharge. This is mostly when the debt was the by-product of fraud, hindering conduct, willful and malicious injury, or malfeasance.
- Seeking an objection: It's rather common for creditors to opt for an adversary proceeding for the purpose of objecting to your receiving a discharge.