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When Your Bankruptcy Filing Involves An Adversary Proceeding

Most bankruptcy filings come with no need for a court appearance or arguments. These can be required in some cases, however, where a creditor, or your bankruptcy trustee, disputes a position you hold. This article looks at what such proceedings involve.

Bankruptcy proceedings don’t play out like regular legal matters in most cases: you don’t appear in court, and you don’t see a judge. Mostly, bankruptcy cases are done online, through paperwork that you complete with help from your bankruptcy lawyer. There may be a solitary 15-minute appearance called a meeting of creditors, as well, that in most cases, involves no creditors.

In some rare instances, however, a bankruptcy case can come with a regular court hearing that involves two sides arguing against each other — known technically, as an adversary proceeding. When an adversary proceeding is included in a bankruptcy case, you may need to appear in court, and prepare yourself for a somewhat lengthy process.

Are Adversary Proceedings Common?

Most bankruptcy cases do not include an adversary process. On average, only about three out of every 100 consumer bankruptcy petitions filed involve them. Since individual bankruptcy cases can involve multiple adversary proceedings, the actual number of unique bankruptcy cases that come with these proceedings is likely to be even smaller.

There Are Different Kinds Of Adversary Proceedings

Bankruptcy cases can involve different forms of adversary proceedings. Some appear in both Chapter 7 and Chapter 13 cases, while others are unique to one or the other. What follows are the most frequently seen types of adversary proceedings.

Motion for relief from stay: In this kind of proceeding, a creditor applies to have an automatic stay removed so that they can move forward and begin collection. This can happen, for instance, when a homeowner is unable to make payments on their house, and the lender wants to go ahead with foreclosing on the property while there is a Chapter 13 pending.

Unwinding a transfer: Heading into a bankruptcy proceeding, it is the bankruptcy trustee’s responsibility to ensure that the debtor has made no transfers of money to creditors out of turn. If such transfers have been made in the two years preceding the bankruptcy proceeding, those transfers can be unwound through an adversary proceeding.

Objections to exceptions: When you file a Chapter 7, the law allows exemptions that protect some of your assets. Sometimes, however, the bankruptcy petitioner, the debtor, may list some of their property as exempt even when the law doesn’t offer it any protection. In such a case, the bankruptcy trustee may file an objection, making a court hearing necessary to determine whether an exemption is to be allowed. As an example, the debtor may claim that their home should be exempt, while the trustee may believe that no exemption is due because the debtor doesn’t live there. Alternatively, the trustee may believe that the debtor has undervalued their home to make sure that it comes in under the exemption cap.

Objections to discharge: When a bankruptcy petitioner is granted a bankruptcy discharge, a creditor, or the bankruptcy trustee may put in a general objection. They may do this if they believe that the petitioner isn’t eligible, or is involved in fraudulent actions.

Adversarial proceedings can be involved in a number of different scenarios, and can require any one of many different possible responses. If your Chapter 13 or Chapter 7 bankruptcy filing requires an adversary proceeding, getting an experienced bankruptcy attorney involved should be your priority. Representation could help you make sure that you’re able to take advantage of every allowance that the law gives you.