An adversary proceeding is just like what it sounds like someone is fighting with someone else in the bankruptcy court. There are three parties in the bankruptcy filing court case who can file an adversary proceeding bringing someone in front of the judge to explain their actions in a hearing or trial. Those parties are a creditor, the trustee, and the debtor. Each of the kinds of adversarial proceedings means the judge will make a decision about the issues presented. And, since most debtors never meet the judge, this can be very intimidating. When a creditor files an adversary proceeding, it is usually because the creditor is arguing that the debt owed to the creditor should not be discharged in the bankruptcy filing.
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Why? The creditor may argue that the debt all within one of the exceptions to discharge, such as a debt created through fraud, willful or malicious injury, or personal injury caused by drunk driving. Or, the creditor argued that the filing of the bankruptcy was done in bad faith. During a bankruptcy filing, a debtor may file an adversary proceeding against a creditor. The debtor may recover damages for creditor's action taken in violation of the US bankruptcy code, in violation of the automatic stay or the discharge injunction.
Once the debtor has received a discharge, the former creditors are no longer allowed to try to collect the discharge debts. In an adversary proceeding, just because one is filed, it doesn't mean that the filer will win the case against the other party. That is the judge's job to determine who is right and who is wrong. A bankruptcy attorney can advise as to the likelihood of success in an adversary proceeding, but really, the judge is the one who decides it ultimately.
The first step in filing bankruptcy is investigating which option is the best to take for you. Learning about Chapter 7 bankruptcy and Chapter 13 bankruptcy is a key. The first bankruptcy filing option involves a liquidation of assets, here outstanding assets, if any are non-exempt, are distributed to creditors. In a short time one can be free of unsecured debt. Those filing bankruptcy under Chapter 7 almost always get a discharge. The law presumes the individual is entitled to a discharge. Only if a creditor or trustee challenges the entitlement to a discharge by filing an adversary proceeding is there an inquiry. People that file for bankruptcy must justify the filing of the case or prove their good faith efforts to avoid a bankruptcy filing or some judge will have to ponder each case to decide if the discharge is warranted. That's not the way it works. The discharge is entered unless there is a successful claim that the debtor isn't eligible for discharge.
While this sounds like an attractive choice it is only an option if one meets certain criteria. Some of these include having a low enough income and credit counseling. The personal bankruptcy law has made it more difficult to apply for. The latter involves a reorganization of one's debt. Here one has the option to pay off all of one's debts over a longer period of time. One's financial responsibilities become easier to pay through a payment plan. This includes regular payments over a specified time period, typically 3 to 5 years. After which any remaining unsecured debt is dismissed.
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