Bankruptcy: The Adversary Proceeding

An adversary proceeding is a lawsuit within a bankruptcy case. These lawsuits are filed in the bankruptcy court and address issues related to the bankruptcy case. Adversary proceedings can address many different types of issues, but in consumer cases they usually involve automatic stay violations, bankruptcy fraud, and dischargeability of student loans.

An automatic stay violation occurs when a creditor attempts to collect a debt from a debtor after they file bankruptcy. Creditors are limited by the bankruptcy in how they can collect debts incurred before the bankruptcy case. When a creditor violates the automatic stay the debtor can file a lawsuit in the bankruptcy court to recover money damages and enforce the stay.

Creditors can file adversary proceedings in bankruptcy court to dispute dischargeability of debts. These types of cases usually involve credit card debt that was incurred during the three months prior to the debtor’s bankruptcy case being filed. The creditor usually claims that the debt was incurred through fraud and that the debtor had no intention of ever paying back the debt when they accepted the loan. If the creditor is successful, their claim will be unaffected by the discharge.

Debtors can file adversary proceedings to discharge student loans. Discharging student loans is a difficult process which requires that the debtor prove that repayment of the debt will be a hardship on the debtor and his family, that the circumstances which make repayment of the student loans are unlikely to change during the repayment period, and that the debtor attempted to repay the debt.