Filing for a Chapter 7 bankruptcy may have been one of the most difficult decisions you've ever made. When a customer files a Chapter 7 bankruptcy, their creditors have rights. After all, their financial situation will likely be affected by the bankruptcy. Because of this, creditors and bankruptcy trustees can file complaints against you and your bankruptcy filing. These complaints are also known as adversary proceedings. Therefore, it's important to keep a close eye on all mail and correspondence you receive after you file for bankruptcy. Here's why and what you need to know to protect yourself.
Who can file adversary complaints against your bankruptcy?
Creditors. An adversary complaint can be filed by creditors when they suspect that you committed fraud or intentionally tried to harm the creditor in some way. For example, if your spending habits using credit cards drastically increased in the last few months leading up to your bankruptcy filing, the creditor card company will likely suspect that you never had any intention on paying those debts back. Therefore, that type of activity may be considered fraudulent.
Bankruptcy trustees. If your bankruptcy trustee finds cause of concern regarding suspected fraudulent activity when he or she investigates your financial records and history, the trustee may file an adversary complaint against your bankruptcy. For example, if you recently sold an acre of land and used the money to go on a vacation instead of putting the money towards your debt, it could be considered fraudulent activity because your first obligation was to repay your creditors, not go on vacation.
Trustees may also find scenarios in your recent financial history in which you robbed Peter to pay Paul, so to speak. Favoritism in repaying debt can be considered fraudulent, especially when it's done immediately prior to filing for bankruptcy. For example, if you owe money to a relative and you don't want them to find out that you will be filing for bankruptcy, the easiest way to hide it from them is to repay your debt to them completely. But, to do so would mean not paying anything to any of your other creditors.
What happens when an adversary complaint is filed?
Regardless of whether it's a creditor or your bankruptcy trustee, they will file their adversary complaint through the court system. This type of complaint is actually a lawsuit filed against your bankruptcy case, and works like any other type of lawsuit. After the complaint gets filed at the courthouse, the plaintiff will receive a summons to send to you, the defendant. Along with the summons, you should also receive a copy of the complaint they filed.
The summons will ask you to respond to the complaint within a specific number of days and/or give you a court date to defend your case. If you do not respond at all, don't respond in time, or don't show up for court, the judge will give the plaintiff a default judgement, which means you will automatically lose the lawsuit that was filed against your bankruptcy. What this could mean is that you will still be required to repay that specific debt, regardless of whether or not your debt gets discharged in your bankruptcy.
For this reason, it is extremely important to keep a close eye on your mail to make sure you do not miss any important notifications and/or summons regarding your bankruptcy case. Depending on the laws of your state, you may receive summons directly in through the postal service via registered mail or it may be physically given to you by a professional server or a constable.
If you do receive a summons, make an appointment with a bankruptcy attorney as soon as possible. He or she will need to be kept abreast of all situations regarding your bankruptcy. However, you may need to hire an attorney who specializes in civil lawsuits to answer the summons and complaint, depending on your state's laws and your bankruptcy attorney's specialties.Share