If you’re thinking of filing for bankruptcy, you should be familiar with an adversary proceeding. It’s an unpleasant possibility in an already unpleasant process. But in this situation, as in all situations, knowledge is power.
What is an adversary proceeding?
As is apparent in its name, an adversary proceeding is a measure taken when there is a fundamental disagreement between a creditor and debtor. Either party can act as the plaintiff in the situation, but there are some proceedings that are more common than others. According to the Bankruptcy Law Network, “When a creditor files an adversary proceeding, it is usually because the creditor is arguing that debt owed to the creditor should not be discharged in bankruptcy.”#
Once a complaint is filed, court procedure is followed while both parties are notified of the situation. If you find yourself the defendant in an adversary proceeding, it’s in your best interest to obtain representation as soon as possible.
Why might I find myself in an adversary proceeding?
There are a few circumstances that may lead to this process. When you file for bankruptcy, your finances become the object of scrutiny. If you’re aware of that and prepared for it, hopefully you won’t find yourself in a situation where you’re forced to defend a particular action. Here are a few transfers that might land you in the hot seat. From Internet database Nolo.com,
Fraudulent Transfers – This can include any money or assets transferred to someone else within two years of filing for bankruptcy. A fraud allegation can seriously hamper your ability to start over, so be sure you are adequately represented.
Preferential Transfers – This also has to do with prebankruptcy transfers, but concerns your repayments to creditors in the 90 days leading up to filing. The onus is on the trustee to prove that the debtor was insolvent at the time of the transfer, but it’s still crucial to know your rights and responsibilities in this proceeding.
Sale of Property – If the debtor owns property jointly, a trustee can file an adversary complaint. This is an attempt to sever the financial relationship between the debtor and co-owner of the property, so those assets can be liquidated during the bankruptcy process.#
There are several other situations that may lead to an adversary proceeding, so it’s prudent to do your own research. But these laws are also complex, and an attorney can represent your best interests throughout the process.