Adversary Proceedings

An adversary proceeding is a lawsuit within a bankruptcy case.   Adversary proceedings are most often filed to determine whether a debt may be discharged in bankruptcy, whether a lien is valid, or the priority of debts (who gets paid first).  McLaughlin & Nardi’s attorneys have significant experience in litigating adversary proceedings, and routinely appear on behalf of our clients in New Jersey’s bankruptcy courts.

Adversary proceedings may be filed by a debtor (the person or business seeking bankruptcy protection), a creditor (the person or business which claims it is owed money by the debtor) or the United States Trustee (appointed by the United States Department of Justice to administer the case and protect the creditors’ interests).  Indeed, any party with a legal “interest” in the outcome of the bankruptcy may file an adversary proceeding.  Our bankruptcy lawyers represent debtors, creditors and other interested parties in New Jersey adversary proceedings.

Adversary proceedings arise when there are disputes in a bankruptcy case. The most typical type of adversary proceeding involves a claim by a creditor that its claim should not be discharged or reduced in the bankruptcy.  Normally, this involves proving that the debt was incurred because of the debtor’s fraud, an intentional act (such as an assault), or that the debtor hid assets. 

Adversary proceedings can be filed when creditors or the trustee believe that the debtor has hidden assets or filed for bankruptcy protection in “bad faith.”  Creditors or the trustee can also pursue adversary proceedings to recover assets which a debtor transferred to avoid paying its debts.

Likewise, adversary proceedings can be filed determined determine whether liens are valid, or to determine the priority of liens (which determines the order in which debtors get paid, and after how much they get paid.  The validity and order of the lien will be determined by the property law of New Jersey, bankruptcy court notwithstanding.

Adversary proceedings can also be filed to revoke the confirmation of a reorganization plan in Chapter 11 or Chapter 13 bankruptcies.  In Chapter 11 business bankruptcies, a debtor still operating the business (known as a “debtor in possession”) can initiate an adversary proceeding to recover money owed to the business.  If the debtor in possession does not pursue the case, a creditors committee can file the adversary proceeding because recovering money owed to the debtor benefits the creditors.

Bankruptcy courts also have the authority to issue injunctions or other “equitable” relief in adversary proceedings.  For example, a debtor could file an adversary proceeding to ask the bankruptcy court to issue an injunction to prevent a creditor from violating the Bankruptcy Code’s “automatic stay.”  Our bankruptcy attorneys have significant experience litigating adversary proceedings in New Jersey bankruptcy court.

Adversary proceedings are heard in bankruptcy court.  Adversary proceedings in New Jersey are heard in the United States Bankruptcy Courts in Newark, Trenton, or Camden.  Our bankruptcy attorneys represent our clients throughout New Jersey in bankruptcy court.

An adversary proceeding follows procedures similar to other lawsuits in state or federal court.  For instance, as in regular lawsuits, the person or business filing the adversary proceeding  is known as a “plaintiff,” and the person who is sued is called the “defendant.”  There is a complaint which must be answered, and there is discovery of each sides’ evidence by the other side.  Cases may be settled, but if there is no settlement there will be a trial.  The trial will be conducted by a United States Bankruptcy Judge, rather than a jury.

Bankruptcy adversary proceedings are complex. Although it may be in New Jersey, bankruptcy law – which is federal law – will apply.  The procedures are complicated, and the rules and time requirements are strictly enforced.  Lawyers with experience are extremely important to any debtor or creditor involved in an adversary proceeding.  Our attorneys have decades of experience litigating New Jersey bankruptcies.

To learn more about what our bankruptcy lawyers can do to assist you in defending against an adversary proceeding, determining the validity and priority of liens, or recovering money or property owed to you by debtors in bankruptcy, call (973) 890-0004 or e-mail us.  We can help.