An adversary proceeding in bankruptcy is basically a separate lawsuit within the bankruptcy case. An adversary proceeding can be brought by either a creditor or debtor, but is typically brought by a creditor.
A creditor typically brings an adversary proceeding because it believes the debt to it alone should be nondischargeable in the bankruptcy case, or the debtor’s entirety of debts should be nondischargeable as to all the creditors.
That creditor would typically bring this action if it believes the debtor incurred the debt through fraud, or perhaps the debtor destroyed documents related to the case, or the debtor was misleading in its representation of its assets to the court.
Another scenario the creditor could bring the action is if the debtor incurred the debt through a motor vehicle accident caused by alcohol use.
A debtor on the other hand could bring an adversary proceeding because the creditor is violated the debtors rights after the bankruptcy case was filed. Perhaps the creditor repossessed the debtor’s car after the case was filed in violation of the automatic stay.
Another scenario a debtor might bring an action against the creditors to seek a determination that the debt is dischargeable. The debtor could bring action against the student loan company or the IRS to argue its debts to them or should be discharged.
An adversary proceeding is a lawsuit that separate from the bankruptcy case even though it involves the bankruptcy case. The debtor or the creditor would initiate the lawsuit by filing a complaint and then the other party would have 30 days to answer. From there, the case would proceed just like an ordinary lawsuit with discovery and then eventually a hearing on the facts and a determination by the judge