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Columbia - Lexington Bankruptcy Lawyer

A Bankruptcy Attorney’s View of Bankruptcy Litigation

By Columbia – Lexington Bankruptcy Attorney Lex Rogerson

Judge - optimizedWhile bankruptcy is primarily a transactional practice, certain issues with creditors or trustees can end up in court. The point is to achieve the client’s goals without litigating.

Whether they come from Columbia or Lexington, Aiken or Newberry, Cayce or Orangeburg, my clients typically want to know in advance about the experience of filing bankruptcy.  Is it like preparing a tax return or like arguing a case in court?

We lawyers tend to consider different areas of practice as either transactional (involving advice, negotiation, and document preparation) or litigation (in which disputes are resolved by a court). Most consumer bankruptcy cases, if done correctly (more on that later), are more like a transaction than a lawsuit. After a lot of preparation and advice, we file the bankruptcy petition and schedules; the process takes its course; and if our client has done everything right, the court issues a discharge in a few months or a few years, depending which chapter we have filed.

What kinds of things that can change that scenario and take us into the courtroom?

Adversary proceedings

Under the Rules of Bankruptcy Procedure, the issues a bankruptcy judge must decide are classified as either “adversary proceedings” or “contested matters.”

An adversary proceeding is a lawsuit that takes place in the course of a specific bankruptcy case. It follows the basic format of a lawsuit in a general trial court such as the state circuit court or the federal district court. That is, it starts out with pleadings being filed and, if not settled, proceeds with discovery (exchange of information), pre-trial motions, and eventually a trial. This process can be relatively expensive and can take time to resolve, though the process is usually much quicker in bankruptcy court than in general trial courts. Adversary proceedings are required for the issues one would expect to be most important or most complicated.  These include:

  • declaring the debtor ineligible for a chapter 7 bankruptcy discharge
  • determining whether a particular debt can be discharged
  • authoring sale of  property the debtor owns jointly with another
  • allowing the trustee to recover a fraudulent or preferential transfer
  • determining the validity, priority, or extent of a lien
  • imposing sanctions for improper collection activity by creditors

Although adversary proceedings are often serious matters, they are occur in a small percentage of cases.  In the District of South Carolina, 7,663 bankruptcy cases were filed in 2013, but only 189 adversary proceedings were filed during the same period.

Contested matters

Any dispute that does not require an adversary proceeding is considered a contested matter. These are much more common, and the majority of cases involves one or more of them. Usually they come before the court by a motion, but they can also take the form of an objection. While these must be in writing, they do not require a formal pleading as an adversary proceeding does. Some of the more common contested matters in consumer bankruptcy cases include:

  • confirmation of a chapter 13 plan
  • allowance of a claim
  • deciding whether property is exempt
  • voiding special liens, including those held by finance companies and judgment creditors
  • determining the value of collateral
  • creditors seeking relief from the automatic stay, viz., permission to collect debts outside bankruptcy
  • dismissal of the debtor’s case

These issues are typically decided with less fanfare than adversary proceedings usually involve. In fact, in this district, many routine motions are handled by passive notice, so that if the opposing party does not object within a specific time, the court will decide the matter without a hearing, usually in favor of the movant. However, in some cases contested matters may require serious hearings that take hours or even days.

Avoiding the drama

I’ve been a bankruptcy attorney for 30 years, but before becoming a specialist, I also represented people at virtually all levels of the basic state and federal courts. When litigation is necessary, I’m game.

But litigation always involves risks.  There are winners and losers, and it’s hard to tell in advance which one you will end up being.

So the best way to win is not to have to fight at all.  Nowhere is this truer than in consumer bankruptcy cases.

A major objective in every case we file is to keep our client below the radar. This requires analyzing each client’s particular debts, assets, and income and devising a strategy to eliminate the issues that can become contested. We eliminate some simply by timing, others by exemption planning, and still others by more complicated strategy. And sometimes we cannot eliminate, but can minimize, risk. In each case, however, the objective is the same: to get our client the best result with the least unnecessary risk.

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