An adversary proceeding is a lawsuit filed inside a bankruptcy case, most often by a creditor arguing that its debt should survive the discharge because of fraud or false statements. If you are served, the deadline to answer is usually 30 days from when the summons was issued, and a bankruptcy attorney can assess what is truly at stake.
Received a summons and complaint in your bankruptcy? Call (415) 754-0115 to set up a free consultation while there is still time to respond, or send a message through our contact page.
What an adversary proceeding is
Most of a bankruptcy case runs on motions and paperwork. A small set of disputes, listed in Bankruptcy Rule 7001, must instead be brought as a full lawsuit within the case. That lawsuit is the adversary proceeding. It starts with a complaint and a summons, follows rules modeled on the Federal Rules of Civil Procedure, and is decided by the bankruptcy judge.
Who can file one
Creditors file them to challenge whether a specific debt is discharged. The case trustee files them to recover property, for example money transferred to relatives or paid to favored creditors shortly before filing. The U.S. Trustee may file one to deny a discharge. Debtors can file them too, for instance to determine whether a student loan or tax debt is dischargeable.
The claims creditors most often bring
Objecting to the discharge of one debt
Section 523 of the Bankruptcy Code lists debts that can be excepted from discharge. Several of them require the creditor to file a complaint and prove its case.
Fraud and false pretenses
A creditor may argue that money, property or credit was obtained through false representations or actual fraud. Credit card issuers sometimes bring these claims over charges made shortly before filing, and the Code creates a presumption against certain luxury purchases and cash advances made close to the filing date.
False written financial statements
A separate ground covers a materially false written statement about the debtor's financial condition, such as an inflated income figure on a loan application, that the creditor reasonably relied on and that was made with intent to deceive.
Embezzlement, fiduciary fraud and willful injury
Other common claims involve fraud while acting as a fiduciary, embezzlement or larceny, and willful and malicious injury to another person or their property.
Objecting to the entire discharge
Section 727 goes further. A creditor or the trustee can ask the court to deny the discharge altogether, based on conduct such as concealing or transferring assets with intent to hinder creditors, making a false oath in the case, or failing to keep adequate financial records. Our article on fraudulent transfers in bankruptcy covers how pre-filing transfers are examined.
Deadlines on both sides
The creditor's deadline
In general, a complaint under the fraud, fiduciary and willful-injury provisions of section 523, or an objection to discharge under section 727, must be filed within 60 days after the first date set for the meeting of creditors. A creditor can ask for more time, but only by a motion filed before that deadline runs out. If no timely complaint is filed, those particular debts are generally discharged.
Your deadline to answer
Once a complaint is filed, the clerk issues a summons, and the defendant generally has 30 days from the date the summons was issued, not the date it arrived, to file an answer or other response. A missed deadline can lead to a default judgment declaring the debt nondischargeable without the debtor's side ever being heard.
What happens after the answer
The case moves through disclosures, discovery and often settlement discussions or mediation. If it does not resolve, the bankruptcy judge holds a trial. The creditor generally bears the burden of proving each element of its claim by a preponderance of the evidence.
Why an adversary proceeding calls for a bankruptcy attorney
The stakes depend on the type of claim. If a creditor wins under section 523, that one debt survives the bankruptcy, often as a money judgment the creditor can collect after the case closes, while other debts are still discharged. If a creditor or trustee wins under section 727, there is no discharge at all, and the debts involved generally cannot be discharged in a later case either.
The Somal Law Firm represents individuals and small business owners from Pleasanton and across the East Bay in bankruptcy matters, including disputes over which debts are discharged. Attorney Bob Somal, Esq. reviews whether the complaint was filed on time, what the creditor must actually prove, what the documents show, and whether a negotiated resolution makes sense. For background on discharge itself, see what debts are discharged in Chapter 7, and our practice areas list the broader services.
Questions an attorney will ask early
- When was the summons issued, and when is the answer due?
- Was the complaint filed within the creditor's deadline, or under a valid extension?
- What did you actually sign or say to the creditor, and when?
- What records exist of the purchases, transfers or statements in question?
Frequently asked questions
Can a creditor file after the 60-day deadline?
For the fraud, fiduciary and willful-injury claims, a late complaint is generally barred unless an extension was requested in time. Some other debts, such as most support obligations and certain taxes, are excepted from discharge without any complaint being required.
Does an adversary proceeding delay my discharge?
A complaint objecting to the entire discharge holds up the discharge until it is resolved. A complaint about a single debt usually does not delay the discharge of other debts; the contested debt is decided separately.
Can these cases settle?
Yes. Adversary proceedings can end in a negotiated agreement or a dismissal rather than a trial. Any agreement that makes a debt nondischargeable should be reviewed carefully, because it will usually be binding after the bankruptcy ends.
If you have been served in an adversary proceeding, call (415) 754-0115 to schedule a free consultation with The Somal Law Firm. Bring the summons, the complaint and the documents the creditor mentions, and we will review the deadline and what the creditor has to prove. You can also contact us through the contact page.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.