What Are Adversary Proceedings in Bankruptcy?

Adversary proceedings are lawsuits separate from, but still involved with, bankruptcy cases. These proceedings can be filed by creditors, debtors or the bankruptcy trustee.

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Adversary proceedings usually occur when the filing party is seeking something in particular, such as having a debt ruled non-dischargeable, recovering fraudulently transferred property or to correct bankruptcy law violations.

When a defendant in adversary proceedings receives a complaint, he or she has a certain number of days to reply that is dependent on the local bankruptcy court rules. If the defendant does not respond in time, the plaintiff can obtain a default judgment.

Types of Adversary Proceedings

The most common adversary proceedings involve fraud, lien stripping and determining whether a debt is dischargeable.

Fraudulent transfers occur when a debtor transfers money or property to another party within the two years prior to a bankruptcy filing. The trustee must be able to prove that fraud took place in a situation like this.

In lien stripping, a debtor is allowed to strip junior charges from properties and treat them as unsecured claims. If, for example, someone has two mortgages on their house and the value of the house is appraised to be less than the amount of the first mortgage, the second mortgage can be stripped.

When a creditor wishes to prevent a debt discharge by the debtor, he or she can file an adversary proceeding to allege that the debtor incurred debt fraudulently.

These are only a few reasons for an adversary proceeding to be filed. If you wish to know more about adversary proceedings, speak to a qualified bankruptcy attorney.

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