For most people, bankruptcy isn’t like a typical legal proceeding. For most, there is no courtroom appearance and little or no contact with a judge. Instead, the bankruptcy process is usually accomplished through a combination of online or telephone courses, paperwork completed with the assistance of your bankruptcy attorney, and a single live appearance at a meeting known as the “341 hearing” or “meeting of creditors.” For most bankruptcy filers, this meeting of creditors lasts less than 15 minutes and does not involve any creditors.
Occasionally, though, a consumer bankruptcy case includes one or more adversary proceedings. Adversary simply means that, unlike the bankruptcy process in general, the proceeding involves one party arguing against another. These proceedings are sometimes described as a lawsuit within the bankruptcy case.
When an adversary proceeding is filed in a bankruptcy case, one or more court appearances may be required. And, an adversary proceeding can mean that it takes longer to complete a bankruptcy case.
How Often are Adversary Proceedings Filed?
Very few consumer bankruptcy cases involve adversary proceedings. In 2018, there were 11,670 Chapter 7 bankruptcy cases and 3,778 Chapter 13 cases filed through the Los Angeles office of the U.S. Bankruptcy Court for the Central District of California. In the Central District as a whole, there were 28,627 Chapter 7 filings and 8,274 Chapter 13 cases filed.
During that same time period, there were 479 adversary cases in Los Angeles and 1,175 in the District as a whole. That means, at most, that adversary proceedings were filed in just over 3% of cases. The actual percentage may be even lower, since it’s possible for more than one adversary proceeding to be commenced within a single bankruptcy case.
Common Types of Adversary Proceedings
There are many possible types of adversary proceedings in a consumer bankruptcy case. Some are common to both Chapter 7 and Chapter 13 cases, whereas others arise only in one type of case.
Here are some of the most common types of adversary proceedings in consumer bankruptcy cases:
Motion for Relief from Stay
In a motion for relief from stay, a creditor asks the bankruptcy court to lift the automatic stay that was entered when the case commenced and allow that creditor to move forward with collection action. One common circumstance in which a motion for relief from stay is filed is when a mortgage holder wants to proceed with a foreclosure action while a Chapter 13 case is pending.
The response required when a creditor files a motion for relief from stay depends on the specifics of the request, the debt in question, the legal issues surrounding the motion, and the bankruptcy filer’s goals. For instance, in the example described above, a debtor who was not hoping to save his or her home through the Chapter 13 case would not necessarily have to appear in court. The homeowner could agree to have the stay lifted, or could make arrangements to surrender the property. However, in some cases, the debtor will want to–and may have grounds to–contest the motion for relief from stay.
Actions to “Unwind” a Transfer
Part of the bankruptcy trustee’s job is to examine transfers that took place leading up to the bankruptcy and determine whether any of those transfers were fraudulent or were prohibited creditor preferences. In some circumstances, the trustee can reach back as far as two years to reclaim property that was improperly transferred.
Objections to Exemptions
Bankruptcy exemptions protect much personal property in a Chapter 7 bankruptcy case. However, in some cases, debtors list property as exempt that the bankruptcy trustee does not believe should be protected. In those cases, the trustee may file an objection to the exemption, triggering a court hearing on whether or not the asset in question is properly protected from creditors.
Some situations in which a trustee might object to exemption of an asset include a debtor claiming a homestead exemption for a house the trustee does not believe the debtor lives in, or the trustee suspecting that an asset has been seriously undervalued in the schedules to bring it under the exemption cap.
Objections to Discharge
Either the trustee or a creditor may raise a general objection to the debtor receiving a bankruptcy discharge. This typically arises when there is an allegation that the bankruptcy petitioner is abusing the process, has committed fraud, or is in some other way to ineligible for discharge.
Don’t Take on Adversary Proceedings Alone
As you can see, the issues addressed in adversary proceedings vary greatly, and the degree and type of response required also varies. And, these are just a few examples of the types of adversary proceedings that may arise in a consumer bankruptcy case.
If you are one of the approximately 13% of Chapter 7 bankruptcy filers or approximately 33% of Chapter 13 bankruptcy petitioners in Los Angeles who filed for bankruptcy without an attorney and you are faced with an adversary proceeding, you should seriously consider getting legal help. Of course, an adversary proceeding isn’t the only reason you’re better off with an experienced bankruptcy attorney. Only about one in 45 Chapter 13 cases filed pro se is successfully completed. But, if you’ve been handling your own bankruptcy case, an adversary proceeding is good reason to seek guidance and representation from a seasoned bankruptcy lawyer.