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Bankruptcy Litigation Adversary Proceedings

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A bankruptcy “adversary proceeding” is essentially a lawsuit filed in a bankruptcy case by a creditor, the panel trustee or US Trustee, or the debtor himself. Since an adversary proceeding is basically a litigation matter in bankruptcy court, it is important to utilize the services of a skilled attorney familiar with both bankruptcy law as well as federal court litigation. For some disputes, an adversary proceeding has distinct advantages in resolving claims of creditors. Whether you are filing or defending an adversary proceeding, the first step would be to speak with a knowledgeable bankruptcy litigation attorney for an analysis of your situation. Some common adversary proceedings include: excepting a debt from discharge, setting aside transfers of property, discharging certain types of debts and challenging the debtors eligibility for a discharge.

Adversary Proceeding for Nondischargeability

Creditors most commonly file adversary proceedings to challenge a debtors ability to discharge certain debts in bankruptcy. The bankruptcy code outlines which types of debt are nondischargeable in 11 U.S.C. §523. The most common allegation by creditors is that the debtor borrowed money he or she had no intention of paying back at the time the money was borrowed. The court uses a very specific test to determine the validity of a creditors claim and to evaluate the debtors subjective intent. Evaluating what the borrowed money was used for is also critical in the Courts determination. For example, if the borrowed money was used for necessary medical expenses or car repairs it is more likely to be dischargeable than if the money was used for a lavish vacation or other luxury items immediately preceding the filing of the bankruptcy case.

If a debt is deemed “nondischargeable” it means the debtor must continue to pay back that particular debt after the bankruptcy case. However, other debts can still be discharged. This type of adversary proceeding is very fact sensitive and it is critical to have your facts presented to the Court by a skilled attorney in the most favorable manner.

Adversary Proceeding by the Trustee or US Trustee

Chapter 7 trustees frequently file adversary proceedings as well. Most commonly, the chapter 7 trustee will sue to set aside the transfer of property such as real estate or a car that was given away prior to the bankruptcy filing, or as part of an effort to recover “preferential payments” to certain creditors (such as family members) to the detriment of others. In either of these cases, the adversary proceeding is typically filed against a third party recipient of property, not against the debtor himself. In these instances, it is the recipient of the transfer or payment who requires a legal defense and the assistance of a bankruptcy litigator to defend their claim to the property already in their possession.

Another common adversary proceeding scenario is when the US Trustee initiates a case to object to the debtors eligibility to receive a discharge under 11 U.S.C. §727. The most common allegation made by the US Trustee in these cases is that false information has been given, or critical information omitted, in the bankruptcy petition, schedules or statement of financial affairs. One common example is when the debtor fails to list valuable property in the bankruptcy schedules. This could be due to an intentional scheme to defraud the bankruptcy court and deprive creditors of a fair recovery, or alternatively could be the result of a simple accidental oversight. It will ultimately be up to the bankruptcy judge to make the determination.

Creditors, debtors and trustees have important rights and duties in bankruptcy court. If you are facing a bankruptcy adversary proceeding matter it is critical to protect your rights and speak to an experienced and creative bankruptcy litigator right away. The time limitations to file an adversary proceeding are quite short in bankruptcy court, so call McFarlin LLP today for a free analysis of your situation.

Adversary Proceeding Filed by Debtors

Debtors too can file adversary proceedings, typically against creditors, for violating the “automatic stay” or bankruptcy “discharge injunction.” The most common scenario is harassment by a creditor after the bankruptcy case has been filed or continued attempts to collect on a discharged debt. The act by a creditor of knowingly continuing to collect on a discharged debt can result in damages against the creditor and in favor of the debtor which in some cases can be a substantial sum of money. If you feel a creditor is attempting to collect a debt unlawfully after having actual knowledge of the bankruptcy filing, it is critical you call a bankruptcy litigator at McFarlin LLP immediately to protect your rights.

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Call An Orange County Bankruptcy Adversary Proceeding Attorney Today

Whether you are a debtor or creditor considering an adversary proceeding, or you have been served with an adversary proceeding,  the Irvine bankruptcy attorneys at McFarlin LLP can protect your rights. McFarlin LLP has provided premier affordable legal representation to thousands of clients in bankruptcy court matters and we are skilled litigators. We offer you a free consultation and analysis of your situation to determine the best course of action. Call us today at: (888) 728-0044.


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