Read this guide to adversary proceedings, learn what they mean for your bankruptcy case, and prepare for what you can do with your lawyer’s help.

Most people seek out bankruptcy as a form of protection. Snowballing debt becomes insurmountable resulting in a need for shelter against the coming financial storm.

But not all debt is immediately protected when you file bankruptcy. Lawsuits called adversary proceedings can still happen and add to your money woes.

What is an adversary proceeding and how are they legal? Take a look at why and how an adversary proceeding might take place.

What is an Adversary Proceeding?

An adversary proceeding is basically a lawsuit within a bankruptcy. It’s usually filed by a creditor against you but you can also file lawsuits against others while in bankruptcy.

These proceedings are rare since most debt is protected by an automatic stay. The automatic stay goes in effect the moment you file a petition.

This automatic stay tells creditors you are in the middle of a bankruptcy proceeding which means they won’t be able to harass you about collecting payments. The automatic stay remains in effect until a final decision is made about your bankruptcy.

For many people, the automatic stay is a much needed financial relief that allows them to get on their feet. An adversary proceeding breaks up this period of calm with a legal battle.

How Does an Adversary Proceeding Work?

Walking away from mountains of debt can be a major mental relief. Usually, substantial amounts of debt get discharged but some get reaffirmed.

You won’t find this out until the trustee reviews your case. This is the magic of the automatic stay.

It helps you push pause on your debt repayments until a final decision is made about your bankruptcy. But there are some types of debt that can’t be protected under an automatic stay.

You’ll need to consult with a chapter 7 bankruptcy attorney if you’re facing an adversary proceeding.

Here are a few examples of situations where you might be sued by a debt collector even after you’ve filed bankruptcy.

Fraud or Misrepresentation

If you’ve been accused of fraud or identity theft, you’re not going to be able to simply discharge the debt through bankruptcy. You can expect an adversary proceeding for the full amount of the debt even after an automatic stay.

You might also face an adversary proceeding if you’ve misrepresented the debt in any way. Providing false information to the court about your debt will likely mean losing the lawsuit against you.

Debt Schemes

Some people take out new debts right before filing bankruptcy because they’re trying to take advantage of the automatic stay. The lender can sue you for a debt you never intended to repay.

What to do During an Adversary Proceeding

It can be scary to face an adversary proceeding when you’re already in financial distress. Consult with your lawyer about state and federal laws related to your case.

You might be protected if you haven’t committed any form of fraud, misrepresentation or preferential transfer. For more information and tips, visit our blog for updates.