Claims during bankruptcy can be settled in an adversary hearing
Creditors are most likely to file a request for an adversary hearing in U.S. Bankruptcy Court, but debtors and trustees overseeing their cases also have this option.
"An adversary proceeding is just what it sounds like - someone is fighting with someone else in the bankruptcy court," writes Oregon bankruptcy attorney Karen Oakes on BankruptcyLawNetwork. "There are three parties in the bankruptcy court case who can file an adversary proceeding, [which is] bringing someone in front of a judge to explain their actions in a hearing or a trial."
Typically, creditors will request an adversary hearing to argue that the money they are owed should not be discharged. For instance, they may claim that the debt was the result of fraud, a personal injury caused by drunk driving or that the bankruptcy petition was filed in bad faith.
When a bankruptcy trustee files for an adversary hearing, he may argue that the debtor presented fraudulent information to the court, that the petition was not accurately filed or that a court date was missed without good cause.
According to Attorneys.com, trustees can also file an adversary proceeding against a creditor. Generally, this occurs if the court suspects that a preferential payment or a fraudulent property transfer has been made to a creditor and the trustee is attempting to recoup the funds or property.
For debtors, filing an adversary proceeding usually takes place if a creditor has violated the bankruptcy petition's automatic stay, which halts collection efforts and lawsuits, or to recover money that was paid out in violation of bankruptcy regulations. There are also cases in which people claim a hardship discharge from student loans or other forms of debt that are not usually covered by bankruptcy, or to have a lien removed from their property.
Finally, a trustee may uncover inaccuracies or fraudulent records in a case and use an adversary proceeding to prevent a discharge of debts through Chapter 7. In such cases, the trustee can compel debtors to convert to a Chapter 13 action if bad faith is suspected in the initial filing or if debtors are found ineligible for liquidation and can afford to make court-ordered payments to creditors over several years.
In cases when fraud or other abuses of the bankruptcy regulations are found, a trustee can also file a lawsuit to have a petition dismissed.
Sign up for a free bankruptcy attorney consultation to have all your questions answered.