Adversary Proceedings: The L.O.L. Surprise Dolls Of The Bankruptcy World

L.O.L. Surprise! dolls are one of the hottest holiday gifts again this year. Kids are obsessed with collecting these cheap plastic dolls that come wrapped in layers upon layers of tissue paper which also hold little accessories, stickers, and secret messages. The unwrapping process mimics a YouTube unboxing video, which many kids are also obsessed with. 

Since there’s no way of knowing which doll you are purchasing based on the packaging, you can go from having a child who is wildly excited to extremely disappointed in a matter of minutes. For parents, that puts a whole different spin on the name L.O.L. Surprise! 

The emphasis on process and the semi-uncertainty surrounding the ending are entirely too familiar to those of us in the bankruptcy world. When a business files for bankruptcy you have a general sense of how things are going to work out in the end, but cannot predict exactly what will happen. 

Oftentimes the outcome of a business bankruptcy here in the Milwaukee area is shaped by an adversary proceeding, which is a lawsuit filed within the bankruptcy case. The Hanson & Payne team is frequently involved in adversary proceedings filed by creditors who want to protect their claims against a bankruptcy filer’s assets by preventing them from being discharged in the bankruptcy case. 

Examples of Claims in Adversary Proceedings

Some common examples of these claims include:

  • Creditors who want the court to determine whether their claim will be discharged in the bankruptcy or still stand after the case is closed in order to provide some certainty 
  • Claims arising from the debtor’s fraud or intentional misrepresentations 
  • A divorced spouse owed maintenance, or who is worried that their ex-spouse will not pay the debts assigned to them in the Marital Separation Agreement
  • Contractor theft claims, specifically in construction or development cases  
  • Claims arising from bad (bounced) checks
  • Claims between former business associates or affiliates
  • Claims against former employees for breach of a non-compete agreement or for theft/embezzlement
  • Actions taken by the bankruptcy trustee in order to recover gifts or transfers of property to friends or family members of the debtor in the 1-year period prior to the bankruptcy filing.

How these proceedings play out has a dramatic impact on the overall bankruptcy. For a debtor, an adversary proceeding may be the difference between coming out of bankruptcy with a clean slate or coming out still owing a significant amount of money to creditors. For creditors, the results of an adversary proceeding may play a big role in their own financial fate. As we often discuss on this blog, one bankruptcy may set off a chain reaction of bankruptcies as customers and suppliers see their own business disrupted. adversary-proceedings-the-lol-surprise-dolls

What determines the outcome of an adversary proceeding varies greatly from case to case. In fact, the list of claims that are not dischargeable in Chapter 7 cases is even different from the list of claims that are not dischargeable in Chapter 13 cases. If you have a specific question about a potential adversary proceeding, the best thing to do is contact an experienced bankruptcy attorney, like those of us on the Hanson & Payne team. We offer representation in all adversary matters and represent an equal share of debtors and creditors in such matters.