What is an Adversary Proceeding?

In the Bankruptcy Court, an Adversary Proceeding is a lawsuit that takes place within a Bankruptcy Case. For Example, let’s say you file for bankruptcy and right before filing for bankruptcy you gave $4,000.00 to your mom to payback a loan she gave you. The Trustee in your case will seek to recover that money, under the theory of a payment to an insider or fraudulent transfer. The Trustee may ask that you pay into the bankruptcy estate the amount you paid your mom. In the case where you cannot cover the amount you paid your mom, the Trustee will file an adversary proceeding against your mom to recover that money for the benefit of your bankruptcy estate. In this case, your mom will either have to pay the money back or hire a lawyer to fight the claim by the trustee for that money you paid her right before filing for bankruptcy.

Another common example of an adversary proceeding is when a creditor objections to the discharge of a specific debt. In this situation, there will be hearings and potential adversary proceedings filed on this specific debt and objection to discharge. Additionally, adversary proceedings arise when there is a dispute about the secured status of a creditor or the value of a lien on a debtor’s property.

As you can imagine, Adversary Proceedings are the most difficult part of any bankruptcy case for both debtors and for third parties that are brought into these proceedings. It is often a shocking experience to receive a notice of an Adversary Proceeding in a Bankruptcy that you are not even a party. In the event you are ever served with a Notice of an Adversary Proceeding, it is a situation that must be taken very seriously and must be acted upon quickly. Failing to timely respond to an Adversary Proceeding can result in a default judgment against you and collection activities under that judgment if the issue of the Adversary Proceeding involved claims of fraudulent transfers and other financial transfers.

Matthew Mazur, P.A. represents parties drawn into Bankruptcy Adversary Proceedings, including avoidance actions, in the United States Bankruptcy Court for the Southern District of Florida.  If you have received a Notice of Adversary Proceeding, you need to act quickly to protect your rights and interests. Failure to do so, could result in adverse financial consequences. Time is of the essence if you receive a Notice of Adversary Proceeding.