If problems arise during a bankruptcy case, the debtor, creditors, and trustee all have the option of filing an adversary proceeding. In this article, we’ll explain what adversary proceedings are as well as how they work. 

Key Takeaways

• An adversary proceeding is a type of bankruptcy proceeding arising out of a bankruptcy case
• Adversary proceedings are separate lawsuits with their own case numbers 
• Adversary proceedings can be brought by a creditor, debtor, or bankruptcy trustee
• Adversary proceedings may be brought over a number of issues including challenging the dischargeability of debts and voiding fraudulent transfers made by the debtor prior to filing the bankruptcy petition
• Adversary proceedings follow a similar process to civil lawsuits beginning with a petition and moving to a court hearing if no settlement can be reached outside of court
• Both sides in an adversary proceeding should be represented by legal counsel 

What Is an Adversary Proceeding?

An adversary proceeding is a separate lawsuit filed within a bankruptcy case beginning when a creditor, a bankruptcy trustee, or the debtor files a complaint asking the court to rule on a bankruptcy-related issue. You can think of it as the bankruptcy court’s version of a civil lawsuit or as another type of bankruptcy litigation.

Most bankruptcy cases are settled without adversary proceedings. However, sometimes problems or questions do arise. That is where adversary proceedings come in.

Issues that people may bring an adversary proceeding over include:

• Objecting to or revoking the debtor’s discharge
• Challenging the dischargeability of a particular debt
• Subordinating a claim or interest
• Regaining property that the debtor transferred or sold to someone else prior to their bankruptcy
• Getting rid of junior liens on real estate
• Recovering money paid to a creditor shortly before the bankruptcy was filed
• Claiming that a debt is within one of the exceptions to discharge
• Claiming that the debtor provided false information to the creditor or incurred the debt in anticipation of filing the bankruptcy
• Recovering damages for a creditor’s misconduct

How Adversary Proceedings Work

An adversary proceeding is considered to be a separate court proceeding from the bankruptcy case and is given its own case number. If an adversary proceeding is filed against you or you plan to file an adversary proceeding, you should be represented by legal counsel.

The adversary proceeding process usually follows these steps:

• The plaintiff files a complaint or petition in the bankruptcy court. The plaintiff’s attorney files the petition and represents the petitioner throughout the process.
• The defendant is given the opportunity to file a response to the claim. If no response is filed, the court can enter a default judgment against the defendant.
• If the defendant challenges the complaint, both sides collect evidence. 
• The two sides may attempt to resolve the disagreement through negotiations.
• If there is no settlement negotiated, the court holds a hearing in which both sides can present their evidence and respond to claims. 
• After the hearing, the court determines an outcome. This has the potential to affect the bankruptcy case.