Exploring Civil Case Proceedings

Bankruptcy Problems: Understanding Adversary Actions

17 March 2018 by Becky Freeman

If you've made a vow to take hold of your financial situation and set things right, you may be considering the fresh start that a bankruptcy might bring to you. Sometimes you may encounter issues that can delay or prolong your bankruptcy proceedings. Being forewarned is being forearmed, so read on to learn about some issues  that could arise in your bankruptcy case.

Adversary Actions

It's important to understand that a bankruptcy adversary proceeding will be filed under its own case number, though it will be connected to your bankruptcy case. You can say that the adversary action is filed "inside" your bankruptcy case. There are several different parties in a bankruptcy case, such as you, your creditors, and the bankruptcy trustee. The same parties have the potential to be involved in an adversary proceeding as well. The main goal of the adversary proceeding is to obtain relief of some sort. Relief, in this instance, means a ruling.

Some common adversary proceedings

1. Transfers of money or property: There are some strict rules about what can be sold or given away in the time period before you declare bankruptcy, and if the trustee finds potential wrongdoing you may be the subject of an adversary proceeding. The trustee must show that you took the offending action knowing that you would be filing for bankruptcy and in an attempt to hide assets from the bankruptcy court.

2. Transfers to preferred creditors: When you declare chapter 7 bankruptcy, you are participating in a liquidation. Your property may be used to help pay off some of your debts, and the bankruptcy trustee needs to be the one who decides who gets what. That means that you are limited in the amount of money you can send to any one of your creditors in the 90 day period prior to your filing.

3. Lien stripping: This type of adversary proceeding is unique to chapter 13 bankruptcy filings, and it will be filed by you. If you have multiple mortgages on your home, you can file to have the 2^nd mortgage classified as unsecured, as long as the amount owed is less than the primary mortgage.

4. Fraudulent debts: This is filed by a creditor against you, and it alleges that you obtained the debt using fraudulent means and therefore it cannot be included in your bankruptcy. For example, if you lied on the loan or credit card application about your income or other pertinent facts, the bankruptcy courts may not discharge the debt if the creditor wins the adversary proceeding.

5. Objection to debt discharge: This is a general allegation of fraud against you, where the trustee or a creditor avows that you have committed fraud in your use of the credit extended to you. For example, if you charged your credit cards up to the max in the weeks before your filing, knowing that you were going to be filing for bankruptcy, you might find yourself facing an objection to debt discharge.

If there is one thing you can count on, it's that your chapter 7 bankruptcy lawyer can assist you in making sure that you never need have an adversary proceeding filed against you, and support you if you do find yourself in that position.

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