Not all Las Vegas bankruptcies go smoothly. Frequently, creditors, who stand to lose quite a bit of money if their debtors discharge their debts in a Chapter 7 bankruptcy, will use the legal process to protect their debts. They sue the bankruptcy debtor in what’s called an “adversary proceeding,” which still occurs before the bankruptcy court and not a typical federal court. The Trustee and the debtor can also initiate adversary claims before the bankruptcy court.
The Federal Rules of Bankruptcy Procedure, which are not to be confused with the bankruptcy code itself, lists the circumstances in which a creditor, the bankruptcy Trustee, or another party can file an adversary proceeding against the petitioner. These are covered in Rule 7001 [http://www.law.cornell.edu/rules/frbp/rule_7001]. They are:
- Recovering money or property from a party. This is not the same as compelling the debtor to transfer property to the Trustee.
- Determining the “validity, priority, or extent of a lien.” This means the creditor wants to establish that the Trustee should pay it out of the bankruptcy estate before paying other creditors depending on the loan in question.
- Subordinating a claim or interest in a debt, which is similar to (2) above. This means a creditor is agreeing to reduce its payment priority to another creditor, such as a second mortgage.
- Obtaining the bankruptcy court’s approval for selling an interest in the bankruptcy estate or obtaining a co-owner’s approval of sale of property the debtor does not own entirely. If someone owns something with the debtor, a creditor (or even the debtor) can ask the court to require a co-owner of a piece of property with the debtor to sell it.
- Objecting to a discharge or objecting to revocation of a discharge. This usually involves the creditor asking the bankruptcy court to deny the debtor a discharge. In many circumstances, the debtor will list a student loan in his or her petition, and the creditor will object to the debt’s dischargeability.
- Determining the dischargeability of a debt. This is similar to (4) above, but there may be a question among creditors as to whether a debt is dischargeable.
- Revoking the confirmation order of a repayment plan (usually in Chapter 13). This allows a party to return to bankruptcy court after it believes the repayment plan has gone wrong. This does not apply to Chapter 7 bankruptcies.
- Obtaining an injunction from the bankruptcy court, so long as a repayment plan does not specify otherwise.
- Obtaining a declaratory judgment related to the above eight situations.
- Determining a claim that is removed from bankruptcy court to a different court.
Most adversary proceedings deal with the dischargeability of a debt, but bankruptcy cases can go in all sorts of directions, which is why hiring an experienced Las Vegas bankruptcy attorney is so important.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation by calling 702-880-5554.