Adversary proceeding in bankruptcy (United States)

An adversary proceeding in bankruptcy is a lawsuit filed within the context of a larger bankruptcy case in the United States. It is a separate civil action governed by its own set of rules (the Federal Rules of Bankruptcy Procedure, derived from the Federal Rules of Civil Procedure) and is used to resolve specific disputes or legal issues that require a more formal process than simply filing a claim or objection.

Adversary proceedings are typically initiated by filing a complaint and serving it on the defendant. The defendant then has a specified time to file an answer. After pleadings are complete, the case proceeds through discovery, motions, and potentially a trial. A bankruptcy judge presides over the adversary proceeding.

Common examples of adversary proceedings include:

• Objections to discharge: A creditor may file an adversary proceeding to challenge the debtor's right to receive a discharge of debts, alleging fraud, concealment of assets, or other misconduct.
• Determinations of dischargeability of specific debts: Certain debts, such as those incurred through fraud or willful and malicious injury, may not be dischargeable even if the debtor receives a general discharge. A creditor can file an adversary proceeding to determine whether a specific debt falls into one of these exceptions.
• Actions to recover fraudulent transfers or preferences: The bankruptcy trustee (or sometimes the debtor-in-possession in Chapter 11 cases) may file an adversary proceeding to recover assets that were fraudulently transferred to others or to avoid preferential payments made to certain creditors before the bankruptcy filing.
• Lien avoidance actions: A debtor may file an adversary proceeding to avoid certain liens on property that impair an exemption to which the debtor is entitled.
• Actions to determine the validity, priority, or extent of liens: Disputes regarding the secured status of a creditor's claim are often resolved through adversary proceedings.
• Requests for injunctive relief: A party may seek an injunction to prevent certain actions that could harm the bankruptcy estate or violate the automatic stay.
• Declaratory judgment actions: Parties may seek a declaratory judgment from the bankruptcy court to clarify their rights and obligations.

The outcome of an adversary proceeding can significantly impact the bankruptcy case and the rights of the parties involved. Judgments rendered in adversary proceedings are generally appealable to the district court and potentially further to the court of appeals.