What is an adversary proceeding? An adversary proceeding is a separate lawsuit that is commenced against the Debtor or some other party, within the bankruptcy case. The original bankruptcy is considered the main case and the adversary case is like a “subcase” in the main case. An adversary proceeding begins with one party filing an adversary complaint against another party or multiple parties. The party filing the complaint is often the Trustee appointed to the case or an interested creditor. Often the defendant in such a case is the Debtor, who is being accused of some wrongdoing. Common adversary proceedings involve allegations of fraud, fraudulent transfers, misrepresentation, requests to deny Debtor’s discharge, determinations that specific debts are non-dischargeable and/or preference payments (payments to creditors that violate the bankruptcy rules).
Sometimes a Debtor might be the one to file an adversary complaint. When a Debtor files such a complaint, it is frequently to avoid a judgment lien or to seek some relief against a creditor. A Debtor may use the adversary proceeding to further some objective in his main case.
Whoever the defendant is in the adversary case, it is imperative that such party file an answer, or some other response, with the Bankruptcy Court. If a defendant fails to respond to a complaint, a default judgment may be entered against that defendant, resulting in adverse consequences to the defendant. It is never a good idea to ignore an adversary complaint.
Once an answer to the adversary complaint is filed with the Bankruptcy Court, the case will proceed similarly to other types of law suits. Discovery (information sought by the parties from each other) will be exchanged, hearings will be held, settlement conferences will be conducted and eventually, if no settlement is reached, a trial will be scheduled to adjudicate the matter.