What are adversary proceedings in bankruptcy cases and how can debtors avoid them? Most personal no asset Chapter 7 bankruptcy cases are simple and straightforward. Debtors file a petition with the Massachusetts Bankruptcy Court and get a Trustee Hearing in 30 days. Generally, all consumer debts are discharged once the client testifies that s/he has made accurate assertions in the Petition and Schedules, and the Trustee is satisfied that they are accurate.
However, from time to time, a creditor or the Trustee files an “adversary proceeding” in Bankruptcy Court, objecting to a debtor’s discharge relative to that debtor’s debt. Or, the debtor can file an adversary proceeding claiming that the creditor has violated the Automatic Stay. For example, if a debtor is attempting to discharge a divorce obligation, or a judgment for an assault and battery, the “creditor” may file a Complaint in Bankruptcy Court properly stating that that particular debt is not dischargeable under federal, or state, law.
Student Loans and Adversary Proceedings
Student loans are a hot topic in the media. Massachusetts Senator Elizabeth Warren recently stated that student loans might cause the next financial crisis. They are not dischargeable absent an adversary proceeding, but they are becoming a huge financial stress on young folks, and, in fact, people of all ages. To discharge student loans, the debtor has the burden of filing an adversary proceeding and proving that he or she would undergo an “undue hardship” if they could not discharge the student loans.
Attorney Fees in Adversary Proceedings
An Adversary Proceeding is essentially a lawsuit on top of the bankruptcy. While a no asset personal bankruptcy generally takes 90 days and is “straightforward” as indicated above, the lawsuit on top of the bankruptcy is anything but simple and direct. It’s a lawsuit. Both sides are allowed discovery, including interrogatories, document production, depositions, motions before the federal bankruptcy court, and, if necessary, a trial.
In a recent case the issue became whether the debtor’s bankruptcy attorney was obligated to represent her in an adversary proceeding. The case, In Re Alaya, Ramzi decided recently by the Bankruptcy Court the Court reviewed a situation in which the Trustee filed an Adversary Proceeding, the attorney for the debtor filed a motion to withdraw as counsel and the Court objected. The judge declared that it was the attorney’s obligation to represent the client in this “most complicated” part of a bankruptcy case and that a failure to do that was an “abdication of an attorney’s duty.” The reviewing Court stated that notwithstanding the judge’s finding, it should not be a bankruptcy attorney’s obligation if he or she wasn’t getting paid and if they were not qualified for such an undertaking. The Court said that an attorney’s motion to withdraw should be considered on a “case by case” basis. The Court ordered a hearing to determine how this case should proceed.
Will Your Bankruptcy Case Require an Adversary Hearing?
Not likely. And, if it does, it is more than likely that your bankruptcy attorney will have prepared you for it before filing the Petition. An experienced bankruptcy attorney will review all of your debts and inform you of what could be problematic. Student loans, recent federal and state taxes, are not dischargeable. Secured loans for homes and vehicles, if you want to keep them, are not dischargeable.
We have been protecting our clients’ assets in bankruptcy since 1985. We have experience in Adversary Proceedings. Call us for a free consultation at 617-227-7423.
