The Difference between Adversary Proceedings and just filing a Bankruptcy Claim
If you have filed a claim against someone who has filed bankruptcy that doesn’t mean that you will collect anything-unless you have taken the next step and undertaken to file an adversary proceeding to preserve your claim. Most unsecured claims are discharged unless you establish before the bankruptcy judge why your claim should be paid AND there are assets sufficient to pay the claims. The claims filed will be paid in order of “Priority”. Claims are organized by classes: Taxes-of course the government comes first!; Secured claims: Banks and individuals who have an interest in an item of collateral (Think car, boat or house here) and then unsecured claims.
An adversary proceeding is an action to perfect a claim. It is a proceeding (actually a series of pleadings and hearings) directed against someone for a certain purpose. In the case of a bankruptcy it consists first of filing a complaint against a individual to determine whether a debt is to be discharged. Sadly, though you may file a claim against an individual in a bankruptcy case it will in all likely hood be “discharged”. When a claim is “discharged” that means that it worthless- especially if it is a an unsecured debt. Most debts listed in a bankruptcy are unsecured unless the creditor has a secured interest in collateral. (If you don’t know what a secured interest is, you don’t have it.) SO, that means your claim even if filed, is highly likely to be worthless. It is worthless not just because it is unsecured, but because usually there are no assets to pay all the claims. Secured creditors are treated differently because they have a security interest in the collateral. They are granted the right to seize the collateral and sell it to offset their loss. The balance of their claim is will be discharged in the final order unless there are assets to pay the claims filed.
A “no asset” case is a case in which there is nothing to pay the creditors for their claims. When you hear the term no asset you can give up or you can take it to the next step and file an adversary proceeding to preserve your claim for future payment. That time comes after the bankrupt has left bankruptcy court and his bankruptcy case is closed by the bankruptcy court.
Filing the complaint to determine whether a debt should be discharged is filed within the bankruptcy case. (Think of it as it is egg within an egg. It is this second egg which contains the prize.) This means that you file a complaint and serve the defendant (the bankrupt) with a copy of your complaint stating the reasons why your claim should be nondischargeable. He has the opportunity to file an answer and raise reasons, called defenses which will be used to defeat you. Additionally before the trial you have the opportunity to conduct “discovery”, which includes Request for Production of Documents, Interrogatories, and Depositions. These are very technical and time-consuming things which must be done prior to going to court. They are important because they form the basis of your proof to show the judge why your claim should be honored instead of discharged. At trial you can show the court why you should win not just by making a statement or argument but demonstrating to the court the evidence which supports your argument. Many people think that going to court means just making oral statement without presenting any proof. Getting the proof is what discovery is about. Getting the proof does not mean that you have the facts on your side. You still have to know the law and how the facts fit into the liability the law imposes. All this being said and done you can ask for the judge to not only make you claim non-dischargable but that you be given a money judgment to enforce. Making your claim nondischargeable means that you still have the ability to collect in the future out of his assets in the bankruptcy or if he has no assets when he is discharged, when he has returned to earning a living or accumulating assets. A judgment is enforceable for 10 years and with renewal an additional 10 years beyond. (It’s another way of saying 20 years tops!)
What you’re actually trying to do is have the bankrupt pay your claim after he has gone through bankruptcy and “dumped off” his other creditors and has returned to earning a living wage or accumulating assets. If your claim is cut off by his bankruptcy discharge, you will not have the opportunity to make the bankrupt pay the claim out of future earnings or assets. Ideally, what you want to have happen is that he goes through bankruptcy and he dumps off all of his other creditors but because your claim is nondischargeable he only owes you. It is a lot easier to pay one creditor than it is to pay one hundred. That is why you would file an adversary proceeding after you have filed your claim. Filing an adversary proceeding is a way to perfect your claim- making it count. I know this is complex but this is why you would want to hire an attorney. You many believe in the justness of you cause but that doesn’t take any of the complexity out of your situation.
Another reason to pursue an adversary proceeding is to allow you to determine if there were dishonest statements made in the debtor’s bankruptcy filing. If you can demonstrate there were dishonest statements made in the filing of his bankruptcy you may be able to have the entire bankruptcy dismissed. (Now that is really upsetting the apple cart!)
If you’re contemplating filing an adversary proceeding against an individual who has filed bankruptcy, I would suggest that you contact an attorney who has the skill and experience to file the adversary proceeding for you. If you claim is just, has any merit, and is a substantial claim, this is not a place for the amateur to learn on the job. This is when you need a professional with experience. You can call me at the above phone number to discuss your specific case.
Remember with Henry Lagman- You are not alone!