You may have heard the term “adversary proceeding” when researching bankruptcy, but it’s not an inscrutable legal concept. It’s just a lawsuit within a bankruptcy case, usually filed by one or more creditors against the debtor. The creditors’ goals are, as always, to protect their claims in the bankruptcy estate. Bankruptcy trustees and debtors can and do file them against each other and creditors too.
Adversary proceedings are adjudicated by the bankruptcy court according to the Federal Rules of Bankruptcy Procedure, which lists the circumstances in which parties, the trustee, or others can file adversary proceedings against one another in Rule 7001. Here’s the list.
(1) Recovering money or property from the debtor save for a few exceptions, including proceedings to abandon property; dispose of property in which an entity other than the estate has an interest; examinations of transactions between debtors and their attorneys; and examinations of the administration of property of the estate by a previous custodian.
(2) Determining the validity, priority, or extent of a lien or other interest in property – Creditors usually use this to ensure they are paid before other creditors out of the bankruptcy estate.
(3) Obtaining approval for the sale of the estate and of a co-owner in property – If the debtor owns property with another person, the co-owner can be asked or compelled to sell his or her share of the property.
(4) Objecting to or revoking a discharge – Creditors usually file these to prevent debtors from obtaining a discharge.
(5) Revoking an order of confirmation in a chapter 11, 12, and 13 repayment plan – Sometimes a party to a repayment plan will petition the bankruptcy court for relief after the repayment plan has gone wrong.
(6) Determining the dischargeability of a debt – This is similar to (4) above.
(7) Obtaining an injunction or other equitable relief, unless otherwise provided in chapter 11, 12, or 13 of the bankruptcy code
(8) Subordinating any allowed claim or interest – This is similar to number (2) above, but the party (usually a creditor) is trying to reduce its payment priority vis-à-vis another creditor.
(9) Obtaining a declaratory judgment for any of the above situations
(10) Determining a claim or cause of action removed from bankruptcy court to a different court
These situations don’t appear equally. The most common ones are when the trustee sues to recover preferential transfers and avoiding debtors’ transfers made before they filed bankruptcy. However a bankruptcy case can go in all kinds of directions, so it’s important to entrust your case with an experienced New York bankruptcy lawyer.
For answers to more questions about adversary proceedings, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy adversary proceedings Bruce Weiner for a free initial consultation.
