Is It Bankruptcy? Or Is It Cake?

There’s a new game show on Netflix called “Is It Cake?” On it, expert bakers make cakes that look exactly like everyday objects. The people on the show have a few seconds to decide if the object they are looking at is cake or the real deal.

The cakes are so realistic looking, and the participants are under so much pressure to quickly assess the objects they are looking at, that real objects are often mistaken for cake (and vice versa). The only way to know what is actually a cake is to cut into it. 

This is reminiscent of the way adversary proceedings work. From the outside, a bankruptcy case may look run-of-the-mill, but an experienced practitioner must quickly assess whether it is appropriate to cut into the case and file an adversary proceeding. 

What Is An Adversary Proceeding? 

An adversary proceeding is a lawsuit filed within a bankruptcy case, typically by a creditor or ex-spouse, in order to preserve their claim against the debtor’s assets. If an adversary proceeding is successful, the person or entity who files suit will still be able to seek payment from the debtor, even after their bankruptcy case is closed and other debts have been forgiven. 

These cases are of critical importance for both parties. For a debtor, an adversary proceeding may make the difference between coming out of bankruptcy with a clean slate or coming out still owing a significant amount of money to creditors. For someone in a financial relationship with a bankruptcy filer, an adversary proceeding may be what salvages their financial claims and keeps them from having to file their own bankruptcy case. At Hanon & Payne, we have worked for both debtors and creditors in these cases and seen their importance close up. 

Adversary Proceedings Come In Many Shapes And Sizes

Some common examples of adversary proceedings include:

  • 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.

What determines whether an adversary proceeding will be successful varies 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. 

This is why it is important to get advice from an experienced bankruptcy attorney like those at Hanson & Payne if you are considering filing for bankruptcy, or have a financial relationship with someone who has filed for bankruptcy. This is a complex area of bankruptcy law, so “winging it” will not work. Messing up could cause you financial hardship, or even get you sanctioned by the bankruptcy court. 

A Milwaukee Bankruptcy Attorney You Can Trust 

Whether you are a debtor or creditor in the Milwaukee area, the Hanson & Payne team is here to answer any questions you may have about the bankruptcy process. Rather than making snap judgments, or going off first looks alone, we will slice into any case before us so we can give the best advice possible. Please contact us today to schedule a meeting.