Adversary Proceedings to Deem Debts Nondischargeable

A bankruptcy ends with a cancellation of all debts except for those determined to be non-dischargeable. Sometimes a separate trial — known as an adversary proceeding — is required to decide a creditor’s claim that a debt should not be discharged.

A creditor may raise objections to discharging certain debts, such as these:

• Debts obtained by fraudulent means
• Debts of more than $800 for luxury goods purchased from a single creditor by credit card within 90 days before filing for bankruptcy, which the debtor didn’t intend to repay
• A cash advance of more than $1,100 from a single creditor within 70 days before filing for bankruptcy, which the debtor didn’t intend to repay

The objecting creditor may argue that a debt transaction was fraudulent in itself or that the debtor committed fraud in the course of the bankruptcy, which could mean that no debts should be discharged. In either event, the claim must be proved with evidence.

An adversary proceeding is basically a lawsuit within the bankruptcy. The creditor seeking relief files a complaint against the debtor, explaining the basis for claiming the debt is non-dischargeable. The debtor might be able to get the case dismissed in limited circumstances, but otherwise the debtor must file an answer denying the complaint’s allegations and raising any defenses. For instance, a debtor who purchased more than $800 in luxury goods by credit card less than 90 days before bankruptcy might claim that the goods weren’t luxuries or that he intended to repay the debt without filing for bankruptcy.

The parties will then conduct discovery, a process in which they exchange information and documents relevant to the claim and any defenses. The parties’ attorneys might negotiate a settlement but, if they don’t, the case decided by the bankruptcy judge after a nonjury trial. The parties have a right to appeal that decision to the federal district court.

An adversary proceeding can be complicated and protracted and the stakes are often high for the parties involved. Whether you are a creditor or debtor, your chance of success would be improved by retaining a bankruptcy attorney with experience and a record of success in handling these cases.

The Law Offices of Michael Jay Berger in Beverly Hills, California is experienced in representing debtors and creditors in adversary proceedings to decide the non-dischargeability of debt. Call 310-271-6223 or contact me online to schedule a free consultation.