Bankruptcy Adversary Lawyers Serving Southern California
An adversary proceeding (or “AP”) is a lawsuit filed separate from but related to the bankruptcy case. It is an action commenced by one or more Plaintiffs filing a Complaint against one or more Defendants and resembles a typical civil case. The Plaintiff is the person, partnership or corporation initiating the lawsuit. The Defendant is the person, partnership or corporation being sued. Certain types of disputes cannot be handled in the bankruptcy case, but instead require the commencement of an adversary proceeding.
Whether you are filing or defending an adversary proceeding, the first step would be to consult with a knowledgeable bankruptcy litigation attorney for an analysis of your case. Some common adversary proceedings include: excepting a debt from discharge, setting aside transfers of property, discharging certain types of debts and challenging the debtors eligibility for a discharge.
Adversary Proceedings are governed by the Federal Rules of Bankruptcy Procedure, which often refer to the Federal Rules of Civil Procedure, along with the Local Bankruptcy Rules and common law of federal civil procedure. If you are a party to a bankruptcy adversary proceeding in bankruptcy court, it is imperative that you are represented by a bankruptcy law firm that understands the complex procedural and legal aspects of a bankruptcy proceeding.
Adversary Proceeding for Nondischargeability
Creditors may issue an adversary proceedings due to objections over having a debt discharged through bankruptcy as a result of the debt arising from fraud or a legal action where the debtor was liable. Another example would be a creditor attempting to contest the priority of the lien of another creditor. The most common allegation by creditors is that the debtor borrowed money he or she had no intention of paying back at the time the money was borrowed. The court uses a very specific test to determine the validity of a creditors claim and to evaluate the debtors subjective intent. Evaluating what the borrowed money was used for is also critical in the court’s determination. For example, if the borrowed money was used for necessary medical expenses or car repairs, it is more likely to be dischargeable than if the money was used for a lavish vacation or other luxury items immediately preceding the filing of the bankruptcy case.
The most common nondischargeability adversaries under Section 523(a) of the Bankruptcy Code are claims that a debt is:
- For money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud under 11 U.S.C. § 523(a)(2)(A);
- For fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny under 11 U.S.C. § 523(a)(4);
- For a domestic support obligation under 11 U.S.C. § 523(a)(5);
- For willful and malicious injury by the debtor to another entity or to the property of another entity under 11 U.S.C. § 523(a)(6);
- Owed to a spouse, former spouse, or child of the debtor not deemed a domestic support obligation incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit, such as a property division, under 11 U.S.C. § 523(a)(15).
If a debt is deemed “nondischargeable,” it means the debtor is still liable for that particular debt regardless of the discharge they may receive in the bankruptcy case. However, other debts can still be discharged. This type of adversary proceeding is very fact sensitive and it is critical to have your facts presented to the court by a skilled attorney in the most favorable manner.
Adversary Proceeding by the Trustee or US Trustee
Chapter 7 trustees frequently file adversary proceedings. Most commonly, the chapter 7 trustee will file suit to set aside the transfer of property such as real estate or a car that was given away prior to the bankruptcy filing, or as part of an effort to recover “preferential payments” to certain creditors, including family members, to the detriment of others. In either of these cases, the adversary proceeding is typically filed against a third party recipient of property, not against the debtor. In these instances, it is the recipient of the transfer or payment who requires a legal defense and the assistance of a bankruptcy litigator to defend their claim to the property already in their possession.
Another common adversary proceeding scenario is when the US Trustee initiates a case to object to the debtors eligibility to receive a discharge under 11 U.S.C. §727. The most common allegation made by the US Trustee in these cases is that the debtor provided false information or a critical omission in the bankruptcy petition, schedules or statement of financial affairs. One common example is when the debtor fails to list valuable property in the bankruptcy schedules. This could be due to an intentional scheme to defraud the bankruptcy court and deprive creditors of a fair recovery. However, the debtor will contend that this could be the result of a simple accidental oversight. It will ultimately be up to the bankruptcy judge to make the determination.
Other examples of when we represent creditors, trustees, debtors and interested parties in litigation include:
- Determinations of whether real or personal property is property of the bankruptcy estate, meaning it was property of the debtor or community property on the petition date, 11 U.S.C. § 541;
- Demands to turnover property to the estate to the trustee or debtor-in-possession under 11 U.S.C. §§ 542 and 543;
- The strong-arm powers of a trustee to avoid certain transfers under 11 U.S.C. § 544;
- Preferences, also known as preferential transfers, made in the 90 days before the petition date, or up to one year before the petition date for insiders, under 11 U.S.C. § 547;
- Fraudulent transfers and obligations in the two years before the petition date under 11 U.S.C. § 548;
- Fraudulent transfers in the four years before the petition date subject to California’s Uniform Voidable Transactions Act (UVTA), formerly known as California’s Uniform Fraudulent Transfer Act (UFTA), under California Code § 3439 et seq., which can made applicable by 11 U.S.C. § 544(a)(3);
- Compelling abandonment of property of the estate under 11 U.S.C. §?554.
We also represent parties in contested matters, such as:
- Motions to dismiss or convert under 11 U.S.C. § 707.
- Relief from the automatic stay under 11 U.S.C. § 362.
- Filing and objecting to claims under 11 U.S.C. §§ 501 and 502.
Since the result of these cases can have dramatic financial impacts, it is important to consult with a skilled bankruptcy attorney experienced in representation of trustees, creditors, debtors and interested parties.
Adversary Proceeding Filed by Debtors
Debtors too can file adversary proceedings, typically against creditors, for violating the “automatic stay” or bankruptcy “discharge injunction.” The most common scenario is harassment by a creditor after the bankruptcy case has been filed or continued attempts to collect on a discharged debt. The act by a creditor of knowingly continuing to collect on a discharged debt can result in damages against the creditor and in favor of the debtor which in some cases can be a substantial sum of money. If you feel a creditor is attempting to collect a debt unlawfully after having actual knowledge of the bankruptcy filing, it is critical you call a bankruptcy litigator immediately to protect your rights.
Involuntary Bankruptcy Proceedings and Other Contested Matters
Bankruptcy courts also oversee contested matters, which are somewhat less formal than an adversary proceeding, but are handled procedurally by many of the same rules, including discovery, under Rule 9014 of the Federal Rules of Bankruptcy Procedure.
For example, the filing of an involuntary bankruptcy proceeding against persons and entities with assets or income that refuse to pay their undisputed debts is considered a contested matter. The requirements under 11 U.S.C. § 303 are strict, and the ramifications of filing an involuntary bankruptcy are serious. It is important for creditors to consider their options by consulting with an attorney who has successfully filed multiple involuntary bankruptcy petitions that have cause clients to be paid substantially or in full. Purported debtors faced with an involuntary petition should also consult with an experienced bankruptcy litigator to consider the numerous options available, including potential dismissal of the petition and negotiations with creditors.
Skilled in Negotiation of Adversaries with Chapter 7 Trustees
When creditors, debtors and interested parties have disputes in Chapter 7 bankruptcy, they often involve negotiation and litigation with the Chapter 7 Trustee. Our familiarity with Chapter 7 trustees allows us to develop appropriate strategies to resolving disputes in bankruptcy. We understand the incentives of a chapter 7 trustee in the Inland Empire and Southern California. We have represented, litigated against, negotiated with and served on the Board of the Inland Empire Bankruptcy Forum with Chapter 7 trustees, including:
- Karl T. Anderson
- Wesley H. Avery
- Lynda T. Bui
- Arturo M. Cisneros
- Charles W. Daff
- Todd A. Frealy
- Howard B. Grobstein
- Richard A. Marshack
- John P. Pringle
- Larry D. Simons
- Steven M. Speier
- Robert S. Whitmore
Contact a Riverside Bankruptcy Adversary Attorney Today
Creditors, debtors and trustees have important rights and duties in bankruptcy court. If you are facing a bankruptcy adversary proceeding matter, it is critical to protect your rights and speak to an experienced and creative bankruptcy litigator right away. The time limitations to file an adversary proceeding are very short in bankruptcy court, and those rules can be strictly enforced, so call Talkov Law today at (951) 888-3300 or contact us online for a free analysis of your situation.