An adversary proceeding is a lawsuit filed to resolve a legal dispute relating to a debtor’s bankruptcy case.  Adversary proceedings may take the form of lien avoidance actions, actions to avoid preferences, actions to avoid fraudulent transfers, or actions to avoid post-petition transfers.  An adversary proceeding is initiated by filing a complaint with the bankruptcy court.  Only a creditor, a trustee or the debtor can file a complaint for adversary proceeding.

Creditors institute adversary proceedings by filing complaints to determine the validity or priority of a lien, revoke an order confirming a plan, determine the dischargeability of a debt, obtain an injunction, or subordinate a claim of another creditor.  A creditor may bring an adversary proceeding if the debt falls within one of the exemptions to a discharge or when the creditor considers that the bankruptcy was filed in bad faith.  Creditors can request relief from the automatic stay, which allows them to resume collection efforts and legal proceedings such as foreclosure or repossession.

A trustee files an adversary proceeding to dismiss the case as a bad faith bankruptcy filing or as the trustee wants to convert the case from one chapter to another.  Trustees may also use adversary proceedings to retrieve payments made to some creditors before the bankruptcy case was filed.

A debtor in possession initiates an adversary proceeding, to recover money or property for the estate.  These are brought against creditors for contravention of the automatic stay or the discharge injunction.  An adversary proceeding brought for a stay or discharge violation will also contain other claims based on federal and state law.