In most cases someone files for bankruptcy, he lists all of his creditors with their addresses, account numbers and at least an approximate amount owed; the creditors receive notice of the Bankruptcy, then they receive the discharge; and they go away. The general rule is that the Debtor will not hear from any of his creditors again once the Bankruptcy is filed. (This post only pertains to debts that may or may not be included in the discharge. It does not apply to creditors who don’t comply with the Automatic Stay.)
There are exceptions. First of all, there are certain debts that are automatically not included in a discharge. That means that once the Bankruptcy is over the Debtor is still liable for the debt. The most common examples are recent taxes, child support or alimony and student loans. These, the debtor can expect to have to deal with once the discharge is entered and are not generally a surprise.
Then there are the others. There are lots of reasons why a debt will be excepted from the discharge, and some of them aren’t as predictable as recent taxes. The complete list included in the Bankruptcy Code (and there are a few other provisions elsewhere in Federal Statutes, but they are really rare) is found at 11 U.S.C. Section 523.
If you file for Bankruptcy and a creditor thinks that you have defrauded them, obtained money by embezzlement or false pretenses, or otherwise come within the scope of a Section 523 objection to discharge, then the creditor may decide to ask the Court to exclude this debt from your discharge. The vehicle for doing this is what is called an Adversary Proceeding, which is essentially a separate lawsuit filed within the scope of the Bankruptcy filing. Adversary Proceedings are actually quite rare, but they do happen.
This is what can happen when a creditor isn’t willing to go away and wants to try to establish that his debt should be excepted from the discharge. First, the creditor may appear at your First Meeting of Creditors. This is not required, but if the creditor is local or has local counsel, it is an easy way to start to feel out the case. The First Meeting of Creditors exists for creditors and the Trustee to ask questions, and a creditor looking to build a case for an objection to discharge may use this as an opportunity to ask a few, basic questions. If they want to ask very many questions, the Trustee will tell them to set a 2004 Examination.
A 2004 Exam is the next step, and again it is not mandatory. A 2004 Examination is basically a deposition. It is a meeting in a conference room that will be recorded one way or another, it will be under oath, and the creditor who requests the exam asks the Debtor (or other party) questions. The debtor can be required to bring documents to the meeting, and it can generate a great deal of facts that the Creditor can use to build his case against the debtor. A 2004 Exam must be authorized by the Court, and the Court has the authority to limit it in scope or duration.
Finally, the creditor must file an Adversary Proceeding (unless his debt is automatically excepted from discharge like child support or student loans). An Adversary Proceeding is really just a lawsuit, but it is filed inside the Bankruptcy. Once it is filed it will proceed like any other civil case, with discovery, motions, and it will finally culminate in a trial with witnesses and exhibits but no jury. One of the important things to remember about an Adversary Proceeding is that it must be filed by a deadline that is set when the Bankruptcy is first filed. That deadline can be extended, but it cannot be missed – unless the creditor didn’t get notice of the filing. Yet one more reason why you must give your lawyer a complete list of everybody you owe money to with their addresses!
I cannot repeat strongly enough how rare most of these things really are. Creditors are not going to spend good money to send someone to a First Meeting of Creditors just because they can. Likewise, filing an Adversary Proceeding is a significant investment in time and money; and creditors don’t do that without good reason. There are certain flags that your attorney will be watching for when he prepares your case that indicate an Adversary Proceeding may be likely. If that is the case, he should go over that with you. It is incredibly rare for an Adversary Proceeding to be filed that is a real surprise to the debtor and debtor’s counsel – assuming that the Debtor has been fully above board with his lawyer. So talk openly and honestly with your lawyer, ask if there is a debt you are concerned about. A big part of your attorney’s role is helping you to evaluate risk and putting you at ease when you are worrying about things that aren’t likely to be an issue.