If issues arise in a bankruptcy case that necessitate further inquiry, Bankruptcy Rule 2004 of the Federal Rules of Bankruptcy Procedure establishes a specific process for obtaining evidence. The process is referred to as a Rule 2004 examination, in accordance with the title and provisions of the rule. While the process is not an adversary proceeding in a bankruptcy case, it does involve sworn evidentiary proceedings. Due to the character of an examination under the rule, assistance from a bankruptcy litigation lawyer familiar with the process is beneficial.
When information provided by a debtor in a bankruptcy case is not sufficient to address questions and concerns that arise, Rule 2004 provides a mechanism for closer examination of issues. The rule permits any party in interest in a bankruptcy case to petition the bankruptcy court requesting examination of “any entity,” including the debtor.
Under the rule, an examination “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 debtor's right to a discharge.” In specified cases where a business may be continued under a Chapter 11, 12, or 13 bankruptcy, “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.”
The rule includes provisions for compelling attendance of witnesses and production of documents and electronically stored information through the use of subpoenas in accordance with the bankruptcy rules.
Most bankruptcy cases proceed smoothly from start to finish, without the trustee or another party requesting an examination. However, when information submitted by the debtor with the petition and in the creditors’ meeting raises questions or concerns about the debtor’s assets or financial transactions, any party in interest may request court permission to conduct an examination by filing a motion with the bankruptcy court.
Most often, the motion is filed by the bankruptcy trustee or by a creditor. Other parties in interest who may file a motion include the debtor, debtor’s spouse, shareholders or owners of a business, or anyone else directly affected by the bankruptcy case. The motion may request examination of any person or entity and must include statements explaining the basis for the request.
The reasons for requesting an examination generally relate to the existence and value of assets, such as whether the debtor transferred property before filing for bankruptcy or is otherwise hiding assets, or whether other suspicious financial transactions occurred prior to the bankruptcy. If an examination reveals deceptive or fraudulent practices by the debtor, the evidence may lead to a trustee recommendation for denial of the bankruptcy discharge or an adversary proceeding in the bankruptcy case.
When a party in interest asks the court to authorize an examination, the bankruptcy court generally approves the request. The most common reason for denial is the existence of a pending adversary proceeding in the bankruptcy case, since information may be obtained under the Federal Rules of Civil Procedure in the litigation.
After court authorization, the moving party can compel testimony or documentary evidence from any person or entity with information relevant to the bankruptcy case. The scope of an examination under the rule is relatively broad.
Testimony and evidence are provided under oath in the presence of a court reporter, similar to the way depositions are conducted in a civil case. However, the rules for questioning a witness in an examination under Rule 2004 are less restrictive than those in a civil court case.
As is the case with a deposition, evidence obtained in an examination may later be used in other legal proceedings in the bankruptcy case or separate from it. Because of that fact, and due to the rules that apply to the questioning process, any party involved in a 2004 proceeding benefits substantially from representation by a bankruptcy litigation lawyer with experience in bankruptcy court proceedings.
A lawyer whose practice focuses on bankruptcy court proceedings has knowledge and skills that are valuable in a Rule 2004 proceeding, including drafting and opposing a motion as well as preparing witnesses for sworn testimony and conducting questioning. Many lawyers who represent petitioners in filing for bankruptcy do not have experience in 2004 motions or in deposition practice and procedure. A bankruptcy litigation attorney has the necessary experience to effectively represent a moving party or debtor in a Rule 2004 proceeding.
The Bankruptcy Rule 2004 procedure is a complex process that requires an understanding of bankruptcy law and the rules that apply. Since bankruptcy litigation and adversary proceedings are a focus of my practice at Dave Burns Law Office, I have substantial experience representing parties in court proceedings that arise in bankruptcy cases, including 2004 examinations. To contact me concerning this type of proceeding, please call (612) 677-8351 or send an email to firstname.lastname@example.org. I am available to meet with clients in both Minneapolis and St. Paul and welcome inquiries from clients and referring attorneys throughout the State of Minnesota.
The Dave Burns Law Office hopes you find this article helpful. But please do not rely on it as legal advice. The law changes regularly and the outcome of any legal matter depends on its unique circumstances. View full disclaimer