Rule 7001 of the Federal Rules of Bankruptcy Procedure deals with adversary proceedings. An adversary proceeding is like any other lawsuit but is filed in the bankruptcy proceeding and determined by the bankruptcy court.
Who Can File
An adversary proceeding is a proceeding filed within a debtor’s bankruptcy proceeding for certain specific reasons. There are three parties who can file an adversary proceeding in a bankruptcy petition – creditor, trustee and debtor. The party filing an adversary proceeding must submit a completed Form 104, the Adversary Proceeding Cover Sheet. Some courts do not require Form 104 if the adversary proceeding is filed electronically through the court's Case Management/Electronic Case Files (CM/ECF) system.
Creditor
A creditor can file an adversary proceeding seeking that a debt which is sought to be discharged in the bankruptcy proceeding should not be discharged because the debt falls within one of the exceptions to the discharge - debt through fraud, willful or malicious injury, or a personal injury caused by drunk driving. A creditor can also file an adversary proceeding on the ground that the filing of the bankruptcy proceeding is in bad faith.
Trustee
The bankruptcy trustee can file an adversary proceeding arguing that the schedules have been incorrectly filled out or contain fraudulent entries. The bankruptcy trustee can also file adversary proceedings to collect money back from a creditor who received funds or property from the debtor or to undo a transfer of real property. If the trustee determines that the bankruptcy petition was filed in bad faith or to abuse the bankruptcy system, the trustee can file an adversary proceeding to dismiss the bankruptcy petition or to compel the debtor to convert a Chapter 7 petition to a Chapter 13 petition.
Debtor
The debtor can also file an adversary proceeding in his or her bankruptcy petition. Generally a debtor will bring an adversary proceeding against a creditor if the creditor has taken steps to recover the dues from the debtor during the operation of the automatic stay. When a debtor files a bankruptcy petition, an automatic stay comes in operation by law which prevents creditors from contacting the debtor or taking steps to collect the debt from the debtor. A debtor can also bring an adversary proceeding against creditors who attempt to collect a discharged debt.
Preparing for It
In most cases the creditor files an adversary proceeding stating that you had deliberately increased the debt of credit cards, for instance. Whatever the accusation, read it through carefully and prepare a point-by-point denial. Though the adversary proceeding is a civil case, a blanket denial will not do in this case. Instead, rebut all the points made by the creditor with evidence or proof. To prepare your denial, you need to understand the accusation completely. Make sure that you do so, before you start writing your denial.
Please be aware that your response will be reviewed by both the creditor and the bankruptcy trustee. If the trustee feels that your response is valid, they will convey this to the creditor, who might then be willing to come for an out of court settlement. To achieve this you have to deliver your response to the adversary proceeding to both the creditor and the trustee.
Next, file the original copy of your response with the bankruptcy court. Approach the appropriate clerk at the court to do this.
Getting Familiar with Rules
Apart from the Federal Rules of Bankruptcy Procedure, you need to be familiar with the local rules as well. Obtain copies of and study both these rules thoroughly. You need to be totally aware of all the rules regarding the bankruptcy procedure.
Now, collect and organize all the documents that support your case and show that the adversary proceedings have been incorrectly filed.
Make sure that you appear in the bankruptcy court on the correct date and well in time for the hearing. Remember to take along the documentary proof that supports your case. Your responses to the allegations made by the creditor have to be direct and clear. This will help to make a good impression on the judge and also clarify matters for all concerned.
