Tag: adversary proceeding

Bankruptcy and Cash Advances

Most of my Chapter 7 bankruptcy clients have a lot of credit card debt that was accumulated over time. That debt may have come from making purchases, incurring services charges and interest, as well as taking cash advances  on credit card. While most of credit card debts are dischargeable in bankruptcy, credit card cash advances may represent a significant problem for potential bankruptcy filer.

According to the Bankruptcy Code, any cash advance, or combination of cash advances from one lender, totaling more than $875, obtained within 70 days of the bankruptcy filing date is presumed to be non-dischargeable. This particular provision is included in Section 523(a)(2)(C)(i)(II). The dollar amount of the cash advance, changes every three years.

This provision was included in the Bankruptcy Code because the Congress was concerned that consumers, who obtained significant cash advances relatively close to time they filed for bankruptcy, knew or should have known that they would be seeking bankruptcy relief, and should not be able to eliminate such debts. Another reason for that provision was to prevent consumers from taking cash advances immediately prior to a bankruptcy filing.

However, in terms of procedural issues associated with cash advances taken out with 70 days prior to the filing, in order to have the court declare that the debt is non-dischargeable, the creditor must file objections in the bankruptcy court. Specifically, the creditor must file an adversary proceeding. Since there are filing fees and other expenses associated with such filings, if the amount of the cash advance is not particularly large, most creditors will not bother filing an adversarial proceeding.

However, since a cash advance may result in an adversary proceeding, I always ask my clients about them and, in appropriate situation, may ask the client to postpone the bankruptcy filing until after the expiration of the 70 day period.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Adversary Proceedings – What Are They?

Even in most common Chapter 7 Bankruptcy cases, creditors may file an adversary proceeding. An adversary proceeding is basically a federal lawsuit brought within a pending bankruptcy case. The Bankruptcy Rules require that certain contested matters in bankruptcy, usually claims related to outstanding debts or transactions, must be litigated in adversary proceedings. Bankruptcy Rule 7001 lists such matters which include: objections to discharge; determination of the validity, priority, or extent of a lien or interest in property of the estate; actions to recover property of the estate; and proceedings to sell property in which the debtor is only a part owner. Bankruptcy Rule 7001 et. seq., lists all of the rules applicable to adversary proceedings.

The most common adversary proceedings in bankruptcy cases are proceedings to determine the dischargeability of a debt. Since the credit card debt is one of the primary reasons for consumer bankruptcy filings, many credit card lenders are actively reviewing petitions and credit usage histories to determine if the debtor obtained the debt through either fraudulent or improper means. In accordance with Bankruptcy Code §523, a creditor can contest the dischargeability of a particular debt that was incurred through false pretenses, fraud, use of false financial statements, embezzlement, or larceny.

Bankruptcy Code §727 allows an interested party, such as a creditor, to contest the entire discharge for intentional concealment, transfer or destruction of property; unjustified failure to keep books and records; dishonesty in connection with the bankruptcy code; or failure to explain loss of assets. If a trustee requests a debtor to provide documents at the meeting of creditors and the debtor is uncooperative, the trustee may bring an adversary proceeding under this section.

In adversary proceedings, the Federal Rules of Civil Procedure apply. These rules are adapted to bankruptcy proceedings by Bankruptcy Rules 9001 et. seq. In order to commence an adversary proceeding, the creditor or trustee will draft a complaint, setting forth the facts and allegations which the plaintiff believes justify the granting of relief against the debtor, and stating the relief requested.

Just like bankruptcy filings, all adversary proceedings must be filed electronically through the court’s E.C.F. system. Each adversary proceeding will be assigned a case number, which will be different from the original bankruptcy case number. All adversary proceeding documents filed with the court must contain the full adversary proceeding caption, both case number and adversary proceeding case number, the type of chapter, and the name of the judge. In adversary proceedings, each debtor is referred to as either “debtor” or “defendant.”

There are three parties in the bankruptcy court case who can file an adversary proceeding. Those parties are the creditor, the trustee (either the Chapter 7 Bankruptcy trustee, Chapter 13 bankruptcy Trustee, or the United States Trustee), and the debtor. Each adversarial proceeding is heard by the United States Bankruptcy Judge for the district where the bankruptcy is filed. For the cases filed here in Rochester, the adversary proceeding cases are heard by Hon. John C. Ninfo, II.

Mere fact that an adversary proceeding is filed does not mean that the party filing it will prevail. The bankruptcy judge will hear the case and will determine each party’s rights. It is the job of the bankruptcy attorney to advise the party as to the likelihood of success in an adversary proceeding, but the case will be decided by the bankruptcy judge.

While most documents in adversary proceedings are served pursuant to Bankruptcy Rule 7004(b) by first class mail upon both the debtor and his or her attorney, service can be completed by other means as well. Service upon the debtor must be made within 10 days of the summons date pursuant to Bankruptcy Rule 7004(f).

In Chapter 7 Bankruptcy, the court sets a statute of limitations for creditors to file objections to discharge. The bar date is 60 days from the date set for the first scheduled meeting of creditors pursuant to Bankruptcy Rules 4004 and 4007. If the meeting of creditors is adjourned, it does not affect the bar date. If a creditor fails to file an adversary proceeding by the bar date, that creditor will be forever barred from objecting to discharge.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.