Most bankruptcy proceedings go through without incident. However, sometimes the trustee will challenge something in a person's case, leading to what's known as an adversarial proceeding where the trustee seeks some type of redress that can't be obtained by filing a motion or paperwork with the court. If the judge decides in the trustee's favor, you could end up paying more money than you anticipated, lose assets, or even have your case dismissed. Here are two things that can trigger an adversarial proceeding and what you can do to try to prevent it.
Preferential or Suspected Fraudulent Transfers
The trustee in your case may file an adversarial proceeding to recover money or property he or she feels was inappropriately transferred to another party. For instance, the trustee will attempt to get back payments totaling $600 or more made to any creditor in the 90 days prior to you filing bankruptcy, even if the creditor is a friend or family member. Likewise, the trustee will seek to obtain any non-exempt property—or equivalent cash value—transferred to another person in the previous two years if he or she feels the transaction was fraudulent in some way.
To avoid any accusations of fraud, you must be upfront and honest about all money and property you transferred before you filed for bankruptcy. There is a section on the bankruptcy form where you can provide this information. As long as the property was transferred for legitimate reasons (e.g., you sold a vehicle), the trustee likely won't think twice about the issue.
If you made a payment of over $600 to a creditor and you don't want the trustee to attempt to get that money back, it may be best to wait until the 90-day time limit passes before filing for bankruptcy.
You Own Property Jointly with Another Person
Another reason the trustee may file an adversarial proceeding against you is if you own a non-exempt asset with another person. When you file bankruptcy, all non-exempt cash and property you own goes into an estate. This includes your portion of any property you jointly own. For instance, if you own a vacation home with your sibling, your portion of the value of the home (e.g. 50 percent) would be added to your bankruptcy estate.
The trustee may file an adversarial proceeding to obtain the value of your part of the asset. The trustee may force you to sell the vacation home, for example, and submit the money to the court. As you can tell, this can end up badly for the co-owner.
Try to resolve any joint ownership issues before you file for bankruptcy. For instance, you can have the co-owner buyout your share of the asset or vice versa. This will reduce your risk of being hit with an adversarial proceeding and make resolving your case much easier.
For more information about adversarial proceedings or help defending yourself in court, contact a bankruptcy attorney like Gruber & Associates, PC.