An Adversary proceeding is a lawsuit that takes place within a bankruptcy. The adversary proceeding begins by when a complaint is filed with the bankruptcy court. A “trial" then takes place within the context of the bankruptcy. Typically an adversary proceeding is filed by a creditor; however, your trustee may also file one on behalf of the bankruptcy estate.
When a creditor files an adversary proceeding, it is typically because the creditor believes that a specific debt owed to them should not be discharged in the bankruptcy. The creditor may argue that the debt falls within one of the exceptions to discharge, such as a debt created through fraud, willful or malicious injury, or a personal injury caused by drunk driving.
Additionally, a trustee may file an adversary proceeding if he or she believes that you intentionally tried to hide assets. The trustee would then liquidate any non-exempt assets to collect money back from a creditor who received funds or property from a debtor. A trustee may also file an adversary proceeding to undo a transfer of real property. The U.S. Trustee may file an adversarial proceeding to try and force a debtor to move from Chapter 7 to Chapter 13 if he or she believes that the filing of the bankruptcy petition was done in bad faith.
Adversary proceedings are very rare; they are filed in less than 1% of all bankruptcy filings. So unless you are trying to commit some type of fraud the chances of an adversary proceeding being filed in your case are very small.
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