Know your rights if you receive notice of a bankruptcy filing. Recently, a local law firm obtained a dismissal of an adversary complaint filed against one his clients for, among other things, fraud. Under the Federal Rules of Bankruptcy Procedure 7001, an adversary complaint must be filed in a bankruptcy proceeding to, among other things, 1) obtain an order requiring money to be turned over; 2) determine the validity, priority, or extent of liens or other interests in property; 3) object to a discharge; and/or 4) determine the dischargeability of a debt. These are the most common reasons for filing an adversary complaint.
To start an adversary proceeding, you must file a complaint. The complaint contains similar characteristics as a complaint in state court (i.e., identification of the parties, venue requirements, jurisdiction requirements, and charging allegations). The complaint’s format must conform to bankruptcy rules and the local rules of court. A current bankruptcy case must be open when the complaint is filed. Or, a motion to reopen a closed bankruptcy case must be filed. Generally, filing an adversary complaint and/or filing a motion to reopen a closed bankruptcy case requires a fee.
The most common adversary complaint is an objection to a debtor’s discharge based on fraud, embezzlement and/or for willful and malicious injury by a debtor to another entity or to the property of another. 11 U.S.C. section 523. For example, if a debtor submits a loan application that inflates their current or past earnings and you rely upon that credit application in issuing credit to the debtor, you may have a basis for objecting to the debtor’s discharge. Or, if you are a creditor and you believe that one of your employees stole from your company, you must file an adversary complaint within 60 days of the initial meeting of creditors to object to the debtor’s discharge based on embezzlement. If you fail to meet this deadline, then you will be permanently barred from contesting the debtor’s discharge based on fraud, embezzlement or false pretenses. It is recommended that you immediately contact a competent bankruptcy attorney to know your rights as a creditor if you receive notice of a bankruptcy filing to avoid the harsh result of losing your ability to contest a discharge because of bad timing.