Litigations in bankruptcy often confuse the inexperienced practitioner because they look the same but are not entirely the same. There are different rules that apply to each kind of bankruptcy litigation and a debtor should know firsthand which rules apply to each to understand how the process would go.
Two Terms in Bankruptcy Litigation
There are two terms that apply in every bankruptcy court: adversary proceedings and contested matters.
Adversary proceedings which are also known as adversaries are separate lawsuits other than the bankruptcy case filed in a bankruptcy court. This proceeding could be started with traditional pleadings and might involve a party’s – usually the debtor – answer, affirmative defenses, complaints, motions to dismiss, etc. This will then be followed with a discovery and trial.
On the other hand, contested matters are bankruptcy litigations that are brought by a motion and is governed by motion practice handled by the state court.
In depth: what is contested matter in bankruptcy?
Contested matters, just like adversary proceedings, are litigations performed in court but have a nature that is less like and simpler than an adversarial trial. That is, contested matters appear more like motion hearings. Parties involved in a contested matter should present their arguments before a judge to persuade them to either make an important ruling regarding the case or dismiss it entirely.
What type of bankruptcy litigations are considered as “contested matters”?
The Advisory Committee Note to Bankruptcy Rule 9014 also provides that any actual dispute that is not considered as an adversary proceeding before the bankruptcy court can be considered as a contested matter.
To understand that better, here are the proceedings which fall under the category of adversary proceedings:
- Determination of a removed claim or cause of action;
- Determination of debt dischargeability;
- Determine the extent, priority, or validity or a lien or other such interest in property;
- Object or revoke a discharge aside from a discharge objection;
- Obtain approval for the sale of property;
- Obtain declaratory judgment;
- Obtain injunction or other similar equitable relief unless otherwise provided for relief already;
- Recover property or money;
- Revoke an order of confirmation for Chapters 11, 12, or 13;
- Subordinate allowed claims or interests unless otherwise provided for subordination.
Unlike an adversary proceeding that is governed by the Part VII of the Bankruptcy Rules, the Bankruptcy Role 9014 governs contested matters and might include the one or more of the following as what happens commonly:
- Case dismissal or conversion;
- Objections to the confirmation of a plan;
- Motions for relief from automatic stay;
- Motions for cash collateral use;
- Motions to obtain credit;
- Certain lien avoidance;
- Assignment, assumption, or rejection of unexpired leases or executory contracts.
Because contested matters do not undergo a trial, they are usually disposed by means of a motion practice followed by a summary hearing.
But while it is true that handling bankruptcy litigations can be very confusing for those who are dealing with their bankruptcy case for the first time, having the help of a bankruptcy attorney is recommended for a clearer and more guided approach on complying with the rules on contested matters or adversary proceedings.