Bankruptcy

What's a Rule 2004 Examination in an Arizona Chapter 7 Consumer Bankruptcy?

By Joseph McDaniel, Esq.

Then there are the other three per cent of cases, or "asset" cases.

Those are the cases that pay the bankruptcy trustee a good deal more money, and her lawyers as well. That's fine, because there are assets to be liquidated, and somebody's got to do that, and they're elected under the law. It's not an easy job, and generally, the bankruptcy trustees do a fine, efficient, and courteous job of dealing with depressed and confused Chapter 7 debtors.

A common event in an "asset" Chapter 7 Bankruptcy is an examination of the debtors under Federal Rule of Bankruptcy Procedure 2004. Arizona bankruptcy lawyers usually refer to these as 2004 Exams.

Most commonly, they are conducted by the lawyer for the trustee, but creditors sometimes want to play, too.

If you think of a 2004 exam as a continuation of the First Meeting of Creditors you won't be far off.

In both cases, there's an examination under penalty of perjury. In both cases, the process is pretty informal, but moderately serious. In both cases, the debtor is typically required to produce paper, because trustees aren't Green!

Just kidding. Trustees are as Green as the next guy, you know?

In every case involving a professional that I've filed in Arizona (doctors, lawyers, chiropractors, certified public accountants, and dentists) there's been a 2004 requested by the trustee's lawyer, and then ordered by the Court, and then attended by me and my client.

For purposes of accuracy, let me say that there might have been a few professional Chapter 7 cases that I filed in the last 30 years where a 2004 was not requested by the trustee, but I can't remember them as I sit here. Getting older may beat the alternatives, but it's not for sissies.

The 2004 may run eight hours, or it may run half an hour.

There are more 2004 cases being taken these days, because this is a depression, and trustees in Phoenix, Arizona are hearing up to seventy 341 Meetings (that's the other name for a First Meeting of Creditors) a DAY!

So a careful trustee will use the First Meeting of Creditors to do triage, and if a case looks like it may have issues (and some of my cases are a little simpler, and a lot have issues, because I see a lot of complex fact patterns these days in my debtors), it will be kicked to the trustee's lawyer for the filing of a Motion for a 2004 Examination, and those orders are routinely granted.

Will a trustee's lawyer change the date and time of a 2004 exam? Generally, yes, once. But those poor devils are as swamped as everybody else, and debtors never like the concept of an auditory body cavity search, so sometimes the attorney for the trustee has to say, "Sorry. We have to do it today at 11:00am because my conference room is now back to back to back for the next month."

Will the lawyer for the trustee be mean and rotten to the debtor?

Generally not. I've seen a surprising amount of compassion and sensitivity evidenced by the lawyers for trustees, although I'd never accuse them to their faces; no need to wake a sleeping dragon.

Now, compassion and sensitivity are one thing; but letting the debtor keep non-exempt assets, or deciding not to sue mom or dad for a preference payment, or agreeing with valuation, that's another thing, and rarer.

But when you get a Motion for a 2004 Examination of the Debtor in a consumer case, don't panic or throw yourself off the top of the Xerox Building on Central Avenue in Phoenix.

It's just another step in the administration of your Arizona bankruptcy case.

And it's not personal for the lawyer for the trustee, unless you make it that way. I tell you now, do NOT talk bad about his mother at the 2004 Exam. They love their mothers, too.

In general, cooperating with the trustee and his lawyers is a good thing, unless they go too far. How far is too far?

That's a topic for another day.

Generally, if you get a baby lawyer for a trustee and he does more that the case justifies in terms of the amount of time he's putting in about the worthless, rusted shell of the 1954 DeSoto, it's better to let him continue past the point of no return before going and whining to the Judge for relief.

I've worked for a couple of Bankruptcy Judges, including the then-Chief Bankruptcy Judge, back when my hair was a different color. And I will tell you that they don't much like discovery disputes, because they'd rather the children would just play nice.

Now, nothing that I've said here applies to the use of the 2004 mechanism in commercial cases, because those are a different can of peas entirely.

Now, some of my clients are amateur lawyers, and they like to read the text of rules and statutes. So for them, I'm copying below the text of Bankruptcy Rule 2004:

Rule 2004. Examination
(a) Examination on motion.

On motion of any party in interest, the court may order the examination of any entity.
(b) Scope of examination.

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 debtor's right to a discharge. In a family farmer's debt adjustment case under 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.
(c) Compelling attendance and production of documentary evidence.

The attendance of an entity for examination and for the production of documents, whether the examination is to be conducted within or without the district in which the case is pending, may be compelled as provided in Rule 9016 for the attendance of a witness at a hearing or trial. As an officer of the court, an attorney may issue and sign a subpoena on behalf of the court for the district in which the examination is to be held if the attorney is admitted to practice in that court or in the court in which the case is pending.
(d) Time and place of examination of debtor.

The court may for cause shown and on terms as it may impose order the debtor to be examined under this rule at any time or place it designates, whether within or without the district wherein the case is pending.
(e) Mileage.

An entity other than a debtor shall not be required to attend as a witness unless lawful mileage and witness fee for one day's attendance shall be first tendered. If the debtor resides more than 100 miles from the place of examination when required to appear for an examination under this rule, the mileage allowed by law to a witness shall be tendered for any distance more than 100 miles from the debtor's residence at the date of the filing of the first petition commencing a case under the Code or the residence at the time the debtor is required to appear for the examination, whichever is the lesser.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on April 15, 2010 (boomark / email).