What Is An Adversary Proceeding When Filing Bankruptcy?

June 25, 2011 by  Filed under: Bankruptcy 

Credit card issuers offer debt that is unsecured meaning you have not put any collateral or property in exchange for having a line of credit or a credit limit. If a debtor wants to file bankruptcy on credit card debt, the issuers will sometimes challenge the validity of this bankruptcy by filing an ‘adversary proceeding’ claiming that the debt was racked up as a result of fraud and should therefore be excluded from discharge. Think of the adversary proceeding as a counter lawsuit filed in the court against your bankruptcy case challenging the validity of the debts and the liens. Card debt is almost certain to be NOT discharged if either of the below 2 conditions are proven:

i) The application submitted to obtain the credit card was fraudulent

ii) The card was used without the intention of repaying the debt, which is frequently the case.

Suspicious Transactions for Card Issuers

There is a high probability that any of the transactions that fall in to the below category will be challenged by credit card lenders under an Adversary proceeding.

– Bankruptcy on a newly issued card or set of cards

– Large cash advances just before filing bankruptcy

– Using card when unemployed or without a limit or belief that the debt will be repaid

– Pattern of borrowing on one credit card to repay another

– Use of card for recent travel or vacations

– Increase in credit card use shortly before filing bankruptcy

– Large balance at filing

As a general rule of thumb, the longer the period between card use and bankruptcy filing, the less the chance of a challenge or dispute of dischargeability by the card lender. A dispute for dischargeability based on fraudulent use of the card may only challenge a portion of the credit card balance, for instance the $10,000 you recently spent on vacation that was charged to your credit card.

What Options are Available to the Debtor for Non Dischargeability of Debts?

If you are concerned that your creditors will challenge the dischargeability of your debts filed under bankruptcy, here are some options available to you:

– Wait to file bankruptcy to allow more time for payments and months to pass by in order for the debt to become older and less questionable for filing bankruptcy. Experts suggest give it at least 3 – 9 months before you file for bankruptcy for any debts that you have incurred now.

– Make a settlement with any objecting creditor if they file a non dischargeability suit.

– Challenge the dischargeability suit at the court trial.

Filing for Chapter 7 bankruptcy can help you eliminate debts if you are facing hardship. Learn how to file & your rights & responsibilities when doing so.

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