Although the automatic stay stops most litigation, the "stay" applies to only non-bankruptcy litigation. Even the simplest bankruptcy case may involve some form of litigation inside the bankruptcy court; a creditor may file a motion to lift the stay or an objection to confirmation in a Chapter 13 case. These are referred to as "contested matters" in the bankruptcy system and are usually fairly straightforward. However, there are more complicated, formal matters in the bankruptcy system called "adversary proceedings."
Contested Matters v. Adversary Proceedings
A contested matter does not require a formal complaint. Examples include: Motion to Lift the Automatic Stay, Objection to a Proof of Claim, Objections to Confirmation (Chapter 13 and Chapter 11 Plans). These are disputed matters but do not reach the level of an adversary proceeding.
An adversary proceeding resembles more traditional federal litigation. A formal complaint and answer are required. Traditional discovery devices can be utilized and if, the case does not settle, there will eventually be a trial. Examples include: Objections to Discharge, Complaint to Determine Dischargeability of a Particular Debt, Complaint to Turnover or Recover Property. These matters are complicated and require a bankruptcy attorney familiar with this type of litigation.
Prior to filing an adversary proceeding, the Trustee, U.S. Trustee or a Creditor may schedule a "2004 Examination". These examinations are virtually identical to a deposition and can include court ordered requests for production of documents. If you are served with a request for a 2004 Examination, you should consult with your attorney immediately. Failure to appear, provide documents or adequately prepare can have severe repercussions.
Discovery in Adversary Proceedings
The Federal Rules of Civil Procedure are incorporated into the Bankruptcy Rules of Procedure through Bankruptcy Rule 7026. As a result, the available discovery techniques and procedures are the same or similar to those utilized in all federal litigation (See FRCP 30 (Depositions), FRCP 33 (Interrogatories), and FRCP 34 (Production of Documents).
Complaint to Determine Dischargeability of a Particular Debt
While the bankruptcy process gets rid of most debts, there are any number of debts that may not be discharged. Under certain circumstances, a creditor is required to file an adversary proceeding in the Bankruptcy Court no later than 60 days after the initially scheduled date of the meeting of creditors. (See 11 USC 523(a)(2)(false pretenses, false representations or actual fraud), 11 USC 523(a)(4)(fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny), 11 USC 523(a)(6)(willful and malicious injury)). Other debts, such as domestic support obligations (11 USC 523(a)(5)), other domestic related obligations (11 USC 523(a)(15)) or taxes (11 USC 523(a)(1)) may, but are not required, to be filed within those timelines. If you are a creditor and believe the debt may not be dischargeable, or are a debtor served with one of these adversary proceedings, consult with your attorney immediately. Failure to act or respond timely could jeopardize your rights.
Objection to Discharge
These are some of the most serious complaints filed in the Bankruptcy Court. These complaints typically involve fraud against the bankruptcy court itself. Examples include: transfers of property within certain time periods with the intent to hinder, delay or defraud creditors; concealing, destroying, falsifying or failing to maintain appropriate records to determine the debtor’s financial condition; making a false oath or account. If you are served with one of these complaints, consult with your attorney immediately. Failure to timely respond could result in you not receiving a discharge of any of your debts.