When Should A Creditor File A Bankruptcy Adversary Action?
By: Washington State Business and Bankruptcy Lawyer Jonathan P. McQuade
Typically, creditors have little to no recourse when a debtor files for Chapter 7 or Chapter 13 bankruptcy. Unless the debtor has sufficient non-exempt assets to pay all of his creditors, or the debts are secured by homes, cars, or other tangible items, the debts will likely be discharged – i.e., wiped out – leaving creditors with little to no recovery on their debt.
In certain instances, however, debtors cannot discharge debts because of how debtors incurred the debt. If
- The debt was obtained by false pretenses, false representation, or actual fraud; or
- The debt arose from fraud or misappropriation of funds when debtor was acting in a fiduciary capacity; or
- The debts are for willful and malicious injury by the debtor to another entity or person,
the debt is not dischargeable and will survive the bankruptcy. To get a non-dischargeability determination, a creditor must file a separate lawsuit in bankruptcy court – an “adversary action” – and prove one of the three factors above.
In some cases, a creditor or party-in-interest can also file an adversary action to dismiss the debtor’s bankruptcy filing in its entirety. In these actions, the creditor or party-in-interest must show:
- With an intent hinder, delay, or defraud, the debtor intentionally transferred, destroyed, or concealed property within one year prior to filing the bankruptcy, or after filing; or
- The debtor concealed, falsified, or destroyed books and records showing the debtor’s financial position; or
- The debtor knowingly made a false oath or account, presented a false claim, etc.
If you are a creditor and are interested in filing an adversary action against a bankruptcy debtor, or if you are a bankruptcy debtor defending against an adversary action needing bankruptcy litigation counsel, please call Jonathan P. McQuade at Beresford Booth PLLC.
Beresford Booth PLLC (425.776.4100), www.beresfordlaw.com.
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