Adversary Proceedings

Adversary Proceedings in Alabama Bankruptcy

In some situations, you may need a type of bankruptcy relief that can be granted only by a judge, and that cannot be provided by simply filing a motion related to the bankruptcy. In those cases, it may be appropriate to file an adversary proceeding within your bankruptcy case. Experienced Montgomery bankruptcy attorney Charles Grainger can help you initiate an adversary proceeding or defend against one.

How Do Adversary Proceedings Work?

In many ways, adversary proceedings are like other civil lawsuits. In Alabama, it is the trustee's job to make sure all assets are collected and creditors are treated equally and fairly. There are many situations that may give rise to an adversary proceeding, but some of the more serious reasons are accusations of fraud by an administrator or creditor or violations of the bankruptcy rights by creditors.

Because adversary proceedings are unusual and require a significant amount of legal work, the client’s attorney fees are not included in the normal price of a bankruptcy.

The most common use of adversary proceedings in our practice is where the client sues one of their creditors for violating their bankruptcy protection. Examples include wage garnishments or repossessions after the case is filed or continued debt-collection efforts by the creditor after becoming aware of the bankruptcy. While the client generally does not have an obligation to pay attorney fees out-of-pocket, the damages received in the case are usually given over to the Trustee for the benefit of the creditors and the violating creditor pays the attorney fees. It is not like “winning the lottery” but adversary proceedings are effective in penalizing creditors who trample on the rights of our clients.

While rare, the Trustee of your bankruptcy case may wish to file a fraudulent transfer proceeding if you transferred money or property within the two years before you filed for bankruptcy. Or, the Trustee can file a preferential transfer adversary complaint if you repaid any creditor to whom you were not related more than $600 during the 90 days before bankruptcy. Similarly, this type of complaint may be filed if you repaid a relative more than $600 during the year before filing for bankruptcy.

A trustee or a creditor may file a complaint to initiate adversary proceedings to deny your discharge if there is an allegation that you incurred a debt fraudulently or filed for bankruptcy fraudulently. Examples of fraud include lying in the information on your bankruptcy petition or lying to the trustee or judge during hearings. Someone who does these things can be convicted of fraud, have his or her discharge denied, or be sentenced to prison. The administrator also can ask the court to deny your discharge if they allege you did not comply with court orders.

People often file an adversary proceeding related to a home during bankruptcy. For example, a landlord may file a complaint asking to lift a stay so that he can evict a tenant if the tenant is using illegal drugs on the property or otherwise endangering it.

People seeking Chapter 13 bankruptcy also can file an adversary proceeding related to mortgages on a home. If you have multiple mortgages, of which one or more junior mortgages are not fully secured by the property, you can ask the court to strip the mortgages that are not secured. To qualify, the home must be worth less than the senior mortgage. For example, if a client has a house worth $150,000 and owes $151,000 on their first mortgage and $30,000 on their second mortgage, the second mortgage may be stripped because there is no equity in the house for it to attach to. On the other hand, it is all-or-nothing. If a $150,000 home has a $149,000 first mortgage, then there is some equity for the second mortgage to attach to so it will not be stripped. If the court agrees, it will strip the junior mortgages and treat them as unsecured claims, like medical or consumer debt.

If you own a nonexempt property with somebody else, and a trustee needs to sell it to pay off creditors, the trustee can file an adversary complaint to sever your interests. This action can force the co-owner of your property to sell the property.

Consult a Montgomery Bankruptcy Lawyer

Experienced Alabama bankruptcy attorney Charles Grainger can evaluate your circumstances to determine whether it is appropriate to file bankruptcy and whether you should file any adversary proceedings within your case, or anticipate that any will be filed against you. We serve clients throughout South-Central Alabama, from our offices located in Montgomery, Prattville, and Troy. Call us at (334) 260-0500 or contact us online to schedule a free consultation.