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Settling Adversary Complaints in Bankruptcy Court

Updated on September 27, 2023

Our Los Angeles real estate law firm handles a large number of cases each year. We routinely obtain judgments for our clients.  Sometimes, after we obtain a judgment, the judgement debtor declares bankruptcy while we are still trying to collect on our client’s judgment.  Luckily, certain types of debt are considered non-dischargeable debt.  A non-dischargeable debt is a type of debt that cannot be discharged through the bankruptcy court.  One type of non-dischargeable debt is for actions or a judgment based in fraud.  For example, a real estate non-disclosure action in which we obtain a judgment for fraud or intentional misrepresentation generally would be non-dischargeable debt.   Accordingly, if you have a judgment for fraud and the judgment debtor (the person who the judgment is against) declares bankruptcy, you would have to file an adversary complaint in the bankruptcy court in order to have the court declare the prior-judgment non-dischargeable and preserve your judgment for at least 10 years.

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After filing adversary complaints based on the non-dischargeability of debt, there is still the possibility to settle the case.  This seems strange, especially in a Chapter 7 no asset case (a case where the debtor claims to have no assets), but it may still be possible.

That said, if settling the adversary proceeding will affect the bankruptcy estate the settlement will generally require the approval of the bankruptcy court.

Let’s look at possible ways to settle an adversary complaint in a Chapter 7 (no asset) case.  One way to settle the adversary complaint is for the debtor to agree that all or a portion of the debt will be non dischargeable.  In such a scenario, the debtor can agree to use his or her post petition earnings to settle the claim.  This type of claim would not affect the bankruptcy estate because the debtor post-petition earnings (post bankruptcy filing earnings) are not a part of the bankruptcy estate.

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Our attorneys have experience handling adversary complaints against debtors.  We do not represent debtors in bankruptcy, instead we focus on protecting creditors rights in bankruptcy proceedings through adversary complaints.  By deciding not to represent debtors we develop the specific skill to fight bankruptcies and preserve creditors claims.

To see if you qualify for a free consultation contact us at (310) 954-1877 or [email protected].