How Does an Adversary Proceeding Differ from a Contested Bankruptcy?
In the course of a bankruptcy, significant disputes can arise that lead to litigation in one of two forms: adversary proceedings or contested matters. Whether initiated by a creditor, the trustee or the debtor, they can affect in large part the outcome of the bankruptcy case. Although there are similarities between them, they are governed by different rules and have unique attributes.
Adversary proceedings are essentially separate lawsuits outside the bankruptcy case itself. As detailed in Federal Rule of Bankruptcy Procedure 7001, these proceedings are formal legal disputes requiring the filing of a complaint, much like a traditional lawsuit. They address such issues as the determination of the validity, priority, or extent of liens, the recovery of fraudulently transferred property, objections to discharges, and revocations of discharges. Other examples include actions to determine the dischargeability of certain debts, which might involve allegations of fraud. This type of litigation is characteristically distinct and formal, requiring adherence to the procedural rules similar to those found in federal civil litigation, including discovery, trial, and the possibility of appeal.
Contested matters, governed by Federal Rule of Bankruptcy Procedure 9014, are commenced by motions filed within the bankruptcy case, not requiring a formal complaint. They might involve ta creditor seeking relief from the automatic stay for a certain debt. Other contested matters might be the assumption or rejection of executory contracts or unexpired leases; the use of cash collateral; or the modification of a repayment plan. While contested matters can address substantial issues within a bankruptcy case, the procedural requirements are less rigorous than those in adversary proceedings. The process entails a hearing rather than a full trial, and the discovery process is more limited As such, contested matters are generally quicker and less costly.
The decision to proceed as an adversary proceeding or as a contested matter requires careful analysis and may be governed by local bankruptcy court rules. It is important for the involved parties, especially debtors and creditors, to consult with an experienced bankruptcy lawyer who can assess the nature of the dispute, choose the appropriate procedure and advocate effectively for their client’s interests.
At the Law Offices of Michael Jay Berger in Beverly Hills, California, our attorneys know how to manage adversary proceedings and contested bankruptcy matters effectively. Call 310-271-6223 or contact us online to schedule a free consultation.
