Bankruptcy is a federal court process that is intended to provide relief to those under an insurmountable amount of debt, while remaining fair to the creditors to whom the debts are owed.

A Chapter Seven Bankruptcy happens when, in exchange for qualifying debt being erased, a debtor agrees that the creditor can take and sell all qualifying property to recoup their losses. State law protects some property from being taken for this purpose. It is known as “liquidation bankruptcy.”

The most common debts to be erased in this arrangement are credit card balances, medical bills, and personal loans. However, not all debts qualify for erasure under Chapter Seven Bankruptcy.

Non-dischargeable debts include child and spousal support, student loan debt, income taxes within the last three years, and injury and wrongful death awards. Additionally, if an adversary complaint is filed, the bankruptcy may not proceed as smoothly.

What is an Adversary Complaint?

An adversary complaint is a separate lawsuit filed in the US Bankruptcy Court. The complaint seeks to deny the bankruptcy discharge of the debtor, and potentially entering a judgment against said debtor. Although it is part of the bankruptcy case, it will have a different case number.

Typically, the adversary complaint is filed by the creditor who believes the debtor has wronged them with bad behavior prior to the bankruptcy filing. The creditor feels that the debtor is not filing for relief in good faith. Some examples of debtor bad behavior include:

  • Incurring credit card debt with no ability or intention to repay;
  • Taking payday loans with no ability or intention to repay;
  • False representation;
  • Embezzlement; or
  • Willful or malicious injury.

Other reasons that an adversary complaint may be filed are potential transfers, sale of property that was jointly owned by the debtor and another party, lien stripping, and fraudulent transfers.

When an adversary complaint is filed, it must be filed by the plaintiff, and the plaintiff is responsible for serving a copy of the complaint to the defendant. The complaint will explain the facts of the case and asks the bankruptcy court to enter a judgment in the plaintiff’s favor.

Who Can File an Adversary Complaint?

In a Chapter Seven Bankruptcy case, three parties may file an adversary complaint: the debtor, the creditor, and the trustee, although the creditor filing a complaint against the debtor is the most common. A creditor would initiate an adversary proceeding because they do not want the debt discharged.

Since both individuals and businesses are allowed to file for Chapter Seven Bankruptcy, a debtor could file the complaint against the creditor if they suspected bad behavior on the creditor’s part, such as failing to provide a repayment plan or attempting to seize exempt property.

The bankruptcy trustee is the person in charge of overseeing the bankruptcy proceeding. The trustee can sell nonexempt property, and distribute the sales proceeds to creditors. They can also file an adversary complaint if they believe that the debtor was engaged in wrongful behavior in connection with the bankruptcy case. This can include:

  • Making false claims;
  • Making fraudulent oaths;
  • Failing to explain the loss of assets;
  • Refusing to obey any court order; or
  • Concealing, destroying, or failing to maintain books and records.

A trustee files an adversary complaint in argument of dismissing a bankruptcy petition. There are several reasons for the dismissal, including inadequate schedules and the debtor missing the 341 meeting without a valid reason.

What If the Defendant Doesn’t File an Answer in an Adversary Complaint?

Debtors should never ignore an adversary complaint filed against them. If they do not respond to the complaint by the deadline, a default judgment is entered against the debtor. Default judgment is a binding decision in which either party is favored upon the failure of the other party to respond or appear in court.

An adversary complaint is essentially a lawsuit filed against a debtor. Failure to respond to this lawsuit could result in the debtor being denied the fresh start discharge and, potentially, a money judgment against the debtor.

Debtors have a very short time to defend themselves against an adversary complaint, usually twenty eight days. So, time is of the essence, and it is imperative to immediately file an answer to an adversary complaint.

Should I Hire an Attorney If I am Facing an Adversary Complaint?

Because an adversary complaint is essentially a secondary lawsuit, a debtor’s bankruptcy attorney is not required to represent the debtor in the adversary complaint lawsuit. Some attorneys will take on both lawsuits, but some will not.

It is important to determine whether your chosen bankruptcy attorney will also handle an adversary complaint before you begin the bankruptcy process. In any case, you will want to hire a knowledgeable and experienced bankruptcy attorney to handle your bankruptcy petition. They will inform you of your options and represent you in court.