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Adversary Proceedings within Bankruptcy

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Whether filed under Chapter 7 or Chapter 13, most personal bankruptcy cases go relatively smoothly, requiring minimal courtroom time or argument for the parties involved. On rare occasion, there may be what’s known as an adversary proceeding within a bankruptcy case, filed either by a creditor or the petitioner. Learn more about adversary proceedings filed by creditors below, and contact a New York bankruptcy attorney if you’re facing an adversary proceeding as part of your bankruptcy case.

Adversary proceedings in a nutshell

An adversary proceeding is the name for a lawsuit filed within a bankruptcy case. Usually, these lawsuits relate to whether or not a debt is dischargeable (i.e., able to be written off) in bankruptcy. Either a creditor or the debtor might challenge the default assumption of whether a particular debt can be discharged. Some adversary proceedings can be filed by one creditor against another, or by the bankruptcy trustee.

Creditors may file adversary proceedings when they believe fraud occurred

Most often, creditors are the parties filing adversary proceedings against petitioners. They often claim that one of the otherwise-dischargeable debts should not be discharged because it was formed through fraud or other “willful and malicious” injury to another person or their property. Under bankruptcy law, debts formed through fraud may not be discharged. A common example is a challenge to the discharge of a credit card debt formed through fraud. The creditor may argue that the debtor had already decided to file for bankruptcy when they opened a credit card and charged a number of large purchases to it, never intending to pay the debt, which would constitute fraud. If the creditor wins their proceeding, the debt will survive the bankruptcy action and must be paid off in full.

Adversary proceedings might cost creditors money

In some cases, adversary proceedings filed by creditors might not only result in a loss of the challenge, but also cost the creditor hundreds of dollars in attorneys’ fees. If the creditor loses their challenge of the dischargeability of a debt and the judge determines that a creditor’s basis for its adversary proceeding wasn’t “substantially justified,” then the judge can award the amount in attorneys’ fees that the debtor spent defending themselves in the adversary proceeding.

Time limits could prevent an adversary action from being filed

Creditors are required to file adversary proceedings within a short window after a bankruptcy petition is filed. If the adversary proceeding is not filed within 60 days of the meeting of the creditors (typically occurring about a month after a petition is filed), then the creditor may lose the opportunity to challenge the discharge entirely.

If you are considering filing for bankruptcy in New York, get counsel from a skilled and experienced Hudson Valley bankruptcy attorney, and contact Rusk, Wadlin, Heppner & Martuscello, LLP for an evaluation of your case, in Kingston at 845-331-4100, or in Marlboro at 845-236-4411.

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