An adversary proceeding may refer to any case in which two opposing parties resolve a dispute through a neutral third party, however, the term is more frequently used to refer to a specific type of action in bankruptcy court.
When a party declares bankruptcy, creditors may choose to commence an adversary proceeding to prevent specific debts from discharge. Adversary proceedings are governed by Federal Rules of Bankruptcy Procedure Rule 3007 and Rules 7001-7087.
Once an adversarial proceeding has begun, a court may refuse to discharge debts if a creditor can show that those debts are the result of the debtor’s fraud or the debtor failed to properly disclose information as per USC 27 §727. A court can also refuse to discharge a debt acquired with the intent to cause willful and malicious injury to another/another’s property or a debt incurred due to fines or penalties imposed by the government. Furthermore, debts greater than $500 incurred from the purchases of luxury items/services are presumed to be non-dischargeable.
For a more comprehensive list of potential exceptions to bankruptcy discharge that may warrant an adversary proceeding, see USC 11 §523.
[Last updated in June of 2022 by the Wex Definitions Team]