An adversary proceeding may prevent debt discharge

An adversary proceeding may prevent debt discharge

| Apr 16, 2021 | Uncategorized

Although most Chapter 7 bankruptcies do result in the discharge of the debtor’s debts, that discharge is not a legal right. Creditors also have rights, and they may object to the discharge.

The process of objecting is a legal action known as an adversary proceeding, and technically, it is a lawsuit.

Reasons for an adversary proceeding

According to the Michigan Courts, a plaintiff may file a complaint and begin the adversary proceeding to recover money or property from the debtor, to argue whether a debt is dischargeable or to subordinate an interest or claim, among other things.

The circumstances of any given case are unique, but frequently creditors file complaints because they believe the debtor has produced false documents, lied about income or attempted to cheat them in some way.

Commencement of an adversary proceeding

The court does not provide a specific complaint form for the creditor to fill out. Instead, complaints are statements that include all the facts that creditors believe are relevant, including the relief they are seeking from the debtor. If the court has already closed the bankruptcy case, then the plaintiff must file a motion to reopen it before filing the written complaint.

Summons and complaint

The plaintiff must serve a summons and complaint to the debtor, the bankruptcy trustee and any other creditors who the case may affect.

Answer to the complaint

The debtor has the opportunity to answer the creditor’s complaint, and when he or she files that, the court sets a hearing date. The hearing is a typical trial with both parties explaining their arguments. The judge reaches a decision in the matter and closes the case.

The creditor can file paperwork to enter a default against the debtor if he or she does not file an answer. A judge reviews this and may sign the default judgment or send it to trial, so filing an answer within the deadline is critical.