You file for bankruptcy to put your mountain of unsecured debt behind you, but it doesn’t always proceed smoothly. Although it’s not a routine happening, a dispute can arise regarding a debt that you included on the petition. Should this happen, you, your trustee, the creditor, or another party involved in the case can file a case called an adversary proceeding.
Creditors file adversary proceedings for a variety of reasons, the most common of which is an objection to the discharge of a debt you owe them. If they believe that you incurred the debt through fraud or misrepresentation, then they may try to stop it from being legally written off.
Any creditor who wants to oppose a debt discharge must file their adversary proceeding within 60 days after the meeting of creditors. If they don’t object before the deadline passes (or ask for an extension), then the debt is discharged, even if you really did incur it through fraud or misrepresentation.
Bankruptcy trustees typically file adversary proceedings if they believe you conducted a fraudulent property transfer, such as giving a lot of cash or expensive property to a relative within a certain period of time before filing for bankruptcy. Other common reasons for a trustee to file an adversary proceeding are:
- You were insolvent and paid any creditor more than $600 within 90 days before filing for bankruptcy. If that creditor is a relative, then the window is extended to one year. The trustee will seek to undo the transfer if the amount you paid is more than the creditor would have received in a Chapter 7 filing.
- You filed for Chapter 7 and own nonexempt property jointly with someone else. Before the trustee can sell your share of the property to repay your creditors, they will have to file an adversary complaint to split your ownership interests from that of the other owner and force the sale of the property.
Debtors can file an adversary proceeding of the situation warrants it. For example, if you file for Chapter 13 and there is more than one mortgage on your home, then the proceeding can remove the secondary mortgages and treat them as unsecured debts, provided that the property is worth less than what you owe on the first mortgage.
While most consumer bankruptcies don’t involve adversary proceedings, it can happen. If you believe that any of your creditors will object to your discharge or you co-own nonexempt property with another party, then discuss the situation with your New York bankruptcy attorney. Your attorney will advise you on the best way to handle it and make sure that your legal rights are protected until the matter is resolved.
Jayson Lutzky is a Bronx personal bankruptcy lawyer. He is admitted in the Southern and Eastern Districts of New York. To find out if you qualify for bankruptcy and to determine if bankruptcy is the right way to obtain a fresh financial start, contact Mr. Lutzky’s office at 718-329-9500. He offers free in-office initial consultations.