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Scura, Wigfield, Heyer, Stevens & Cammarota Blog

Rule 2004 Examinations in Bankruptcy

[fa icon="clock-o"] July 17, 2018 [fa icon="user"] David E. Sklar [fa icon="folder-open'] Bankruptcy

rule-2004-examinationIf you are considering filing for bankruptcy, you may be wondering about your obligations during the bankruptcy process. Outside of the requirement that you attend your 341a hearing, another appearance that may be necessary is for a rule 2004 examination. This blog will explore what a rule 2004 examination is and what your obligations are for compliance with the rule 2004 examination.

What is a Rule 2004 Examination

            Rule 2004 of the Bankruptcy Code states that

  1. On motion of any party in interest, the court may order the examination of any entity. b. The examination of an entity under this rule or of the debtor under § 343 of the Code may relate only to the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor’s estate, or to the chapter 12 an individual’s debt adjustment case under chapter 13, or a reorganization case under chapter 11 of the Code, other than for the reorganization of a railroad, the examination may also relate to the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formulation of a plan.

Typically, a debtor is issued a Rule 2004 Examination by a trustee or a creditor in the case. It is a tool to find out more about your financial affairs. Often, the entity conducting the examination is investigating whether there are assets in the case or whether it is in their interest to file an adversary proceeding. As part of the examination, the entity conducting the examination can demand documents and an appearance to give testimony from you. The testimony portion of the examination itself operates much like a generic state court deposition would in that the entity’s attorney (in most cases) will ask you questions that you must answer. There is a wide scope given in these examinations if the questions pertain to your financial affairs. If a question is objectionable, your attorney should be present with you to object at appropriate time periods.

In the vast majority of bankruptcy cases, these examinations are not conducted. It can be expensive conducting a Rule 2004 Examination, so the entity conducting it generally must make a cost determination ahead of time as to the examination’s potential value. As a debtor in a bankruptcy case, you must comply with a Rule 2004 Examination or file a motion with the Court seeking to quash the subpoena. Unless the creditor is simply seeking to harass you, asking questions that are irrelevant to your financial affairs, or asking for documents that are overbroad or irrelevant to your financial affairs, then the Court is likely to deny your motion to quash the subpoena[1].

Why happens if you fail to comply with a 2004 Examination?

            When you file a bankruptcy proceeding seeking to discharge debt, you are invoking the jurisdiction of the bankruptcy court. There are benefits and burdens to filing a bankruptcy case, so it is important that you comply with your procedural obligations to enable you to obtain a discharge of your debt at the end of the proceeding. If you refuse to produce documents or appear for a 2004 examination, you can be denied a discharge, have your case dismissed for bad faith and be found to be in contempt of court. Being denied a discharge, having your case dismissed for bad faith and being found to be in contempt of court each have significant legal consequences. Therefore, it is important that you are open and transparent with the entity seeking a 2004 examination of you. You must comply with the document demands to the best of your ability and answer the questions that you are asked in an accurate manner. Producing incomplete documents or failing to answer questions can make your bankruptcy proceeding unnecessarily complicated and can make it more difficult for you to obtain your desired result.

How to Prepare for a 2004 Examination.

            If you are subpoenaed for a 2004 examination, it is important that you are familiar with your financial affairs. As a debtor in a bankruptcy case, it is your obligation to be able to testify about your financial affairs and the circumstances leading up to your bankruptcy filing. Simply testifying that you do not know the answer to questions about your financial affairs will not be sufficient and is likely to have negative implications in your bankruptcy case. Additionally, it is important to listen to the questions that your are asked to make sure that you are answering the questions correctly. You only need to answer the questions that you are asked and do not need to volunteer information that you are not asked. If the attorney questioning you wants you to expand upon your answer, then they will ask you to do so. Lastly, you should get a good night’s sleep prior to the deposition, so you are relaxed and clear-headed throughout the examination.

If you are considering filing for bankruptcy, it is important to contact an experienced New Jersey bankruptcy attorney to guide you through your options and present you with the potential pitfalls. For questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.

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[1] Sometimes a Court will limit certain documents requested, while ordering the examination itself to go forward depending on the facts and circumstances of an individual case.

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