Who Can File Adversary Proceedings in a Bankruptcy Case?

Bankruptcy is a court-supervised procedure through which the petitioner asks for debt to be alleviated. If all goes well, the bankruptcy court’s discharge order alleviates the debt. The bankruptcy case itself is not litigation. However, bankruptcy litigation may occur within in a bankruptcy case if someone files an adversary proceeding in the case. Bankruptcy petitioners and creditors with an interest in a bankruptcy case often ask who can file an adversary proceeding, and what happens in an adversary proceeding.

The U.S. Bankruptcy Code and Federal Rules of Bankruptcy Procedure govern filing of adversary proceedings. The law and rules authorize debtor, a creditor, the bankruptcy trustee, or the U.S. Trustee to file an adversary proceeding in a bankruptcy case in certain circumstances.

Adversary Proceeding Basics

An adversary proceeding is a court action (lawsuit) filed within a bankruptcy case. Unlike the bankruptcy case, an adversary proceeding is litigation that involves a formal legal proceeding in the bankruptcy court. The litigation takes place completely apart from underlying the bankruptcy case.

In bankruptcy litigation, the parties gather evidence through discovery, present evidence to the bankruptcy court, and argue their respective positions to the bankruptcy judge. Specific bankruptcy court rules apply to the entire process. For those reasons, the parties to an adversary proceeding in a bankruptcy case should be represented by an attorney whose practice includes handling bankruptcy litigation.

Some attorneys who assist with bankruptcy petitions also handle some types of bankruptcy litigation, while others do not. A bankruptcy litigation attorney focuses specifically on handling all types of adversarial proceedings within a bankruptcy case.

In addition to ensuring that an adversary proceeding follows proper legal rules and procedures in court, a bankruptcy litigation attorney also plays an important role in exploring possible resolution of the issues that give rise to the litigation. In many cases, a skilled negotiator can achieve a settlement agreement that is acceptable to both sides in the proceeding, which avoids the time-consuming, costly process and uncertain outcome that accompany going to trial before a bankruptcy judge. The negotiations require detailed knowledge of bankruptcy law, federal rules, and local procedures and processes.

Who Can File a Bankruptcy Adversary Proceeding?

Court actions by creditors are among the most common types of adversary proceedings in a bankruptcy case. However, the bankruptcy trustee, U.S. Trustee, or the debtor also may initiate an adversary proceeding by filing a complaint.

Adversary Proceedings Initiated By the Debtor

The debtor can file several different types of adversary proceedings in a bankruptcy case. Issues such a dischargeability of a debt or creditor violations of the bankruptcy laws (which may entitle the debtor to damages) are examples of the kind of litigation that a debtor may decide to pursue.

If you are the debtor in a bankruptcy case, determining whether you should file an adversary proceeding requires legal and factual analysis of the situation. The attorney who is assisting with your bankruptcy helps you decide whether an adversary proceeding might be appropriate. In addition, you or your attorney may decide to consult directly with an attorney who focuses specifically on bankruptcy litigation.

Trustee and U.S. Trustee Adversary Proceedings

The bankruptcy trustee is the person who oversees the process in a bankruptcy case. The trustee evaluates the case and makes recommendations to the bankruptcy court, which has authority over the case. The United States Trustee is an officer in the U.S. Department of Justice who appoints bankruptcy trustees in bankruptcy cases.

The bankruptcy trustee may bring a number of types of adversary proceedings in a bankruptcy case, including filing a complaint to:

• Raise concerns about the accuracy and truthfulness of the bankruptcy documents
• Ask the bankruptcy court to dismiss the case for non-compliance with procedures
• Request court authority to collect money from a creditor under Section 547 of the bankruptcy law in avoidable preference litigation
• Ask the court to void a fraudulent transfer

The U.S. Trustee has major enforcement and administrative responsibility in bankruptcy cases, which includes the ability to initiate an adversary proceeding in certain circumstances. The two most common reasons that the U.S. Trustee would bring an adversary proceeding are:

• To request dismissal of the bankruptcy case on the basis that the filing constitutes an abuse of the bankruptcy system
• To force the debtor to change from Chapter 7 to Chapter 13, if the Trustee believe the bankruptcy petition was filed in bad faith

In any case in which the bankruptcy trustee or U.S. Trustee files an adversary proceeding, it is essential for the debtor to be represented by an attorney with experience in bankruptcy litigation.

Creditor Adversary Proceedings in a Bankruptcy Case

Bankruptcy law and court rules permit a creditor to file adversary proceedings in specific situations. Creditor-initiated bankruptcy litigation often includes allegations of fraud as well as factually and legally complex issues.

Adversary proceedings brought by a creditor meet very specific requirements under the U.S. Bankruptcy Code, Federal Rules of Bankruptcy Procedure, and local rules. It is essential for a creditor considering initiation of litigation in a bankruptcy case to consult with an attorney experienced in and knowledgeable about bankruptcy litigation as well as the laws and court rules that apply.

Talk With a Respected Minnesota Bankruptcy Litigation Attorney

At the Dave Burns Law Office, I represent creditors and debtors in all types of adversary proceedings in the United States Bankruptcy Courts in Minneapolis and St. Paul. Bankruptcy litigation is a primary focus of my practice.

If you face or are considering filing any type of adversary proceeding in a bankruptcy case, I welcome you to contact me at (612) 677-8351 or by sending an email to me at dave@daveburnslaw.com. I am available to meet with clients in both Minneapolis and St. Paul and welcome inquiries from clients and referring attorneys throughout the State of Minnesota.