When you file for Chapter 7 or 13 bankruptcy, the bankruptcy trustee may request that you attend what is known as a 2004 examination. Although not common, a 2004 examination is a more involved investigation into a debtor's finances, and can sometimes mean that there are possible problems with the case, or that the trustee believes there are assets or property which can be taken.
How a Trustee Investigates a Debtor's Assets
For each bankruptcy case, a trustee is appointed to, among other things, investigate the debtor's assets and financial status. In a Chapter 7 bankruptcy, the trustee may take any property of the debtor that has value, and which is not exempt, and sell the property to satisfy creditors. (Learn about which property is exempt in bankruptcy.)
There are various ways that a trustee investigates the assets of a debtor.
Examination of the bankruptcy schedules and documents. One way is by reviewing the bankruptcy schedules, which are the documents that the debtor files with the bankruptcy petition. The schedules list the debtor's income, assets, and debts. The trustee also examines the debtor's basic financial documents, such as bank statements or tax returns.
Examination at the 341 hearing. All debtors will be required to attend what is known as a 341 meeting. This is a short, informal opportunity for a trustee and any creditors to ask very basic questions of the debtor. Many 341 meetings last only a few minutes, and for most debtors, this will be the end of the trustee's or any creditor's inquiries, and a discharge of the debts will follow.
2004 examination. However, in certain circumstances, a trustee or creditor may want more information than what is obtained at the 341 meeting. Bankruptcy law allows a trustee or creditor to question a debtor further, by requesting the debtor sit for a 2004 examination, named after Rule 2004 of the Bankruptcy Rules of Procedure.
This examination is much more detailed, probing, and longer, than the 341 meeting. It is very similar to a traditional deposition which would be taken in a lawsuit.
When a 2004 Examination May Be Requested
Here are some common reasons why a trustee or creditor will want to hold a 2004 examination.
Something in Your Finances Is Cause for Concern
A trustee or creditor will often request a 2004 examination when there is something in the debtor's finances or financial history which leads them to believe that the debtor may have non-exempt assets available, or that the debtor may have committed fraud. Some examples of what may cause a creditor or trustee to notice a 2004 exam include:
- transferring property out of a debtor's name before the bankruptcy
- hiding or appearing to be hiding assets, or failing to list assets on the schedules
- paying off creditors before filing bankruptcy
- incurring debts (such as running up a credit card bill), knowing that the debtor will be filing bankruptcy,, and
- irregular entries on bank statements, such as large, one time transfers of money in or out of accounts.
Just because a 2004 exam is noticed, however, doesn't mean that you actually did anything wrong. You may not end up having any property taken and you may still ultimately obtain your discharge.
The Trustee or Creditor Needs More Information
In some cases, a trustee or creditor may notice a 2004 examination not because there is anything concerning, but simply because more information is needed than what can be gathered at the 341. This is often the case with debtors who have businesses, higher incomes, or more complex financial matters or histories.
The Trustee or Creditor Wants to Talk to Someone Other Than the Debtor
A trustee or creditor can also notice non-parties for a 2004 examination. For example, if the trustee believes that a family member is holding and hiding assets for the debtor, or has received property which once belonged to the debtor, the family member may have to attend the 2004 examination.
What to Expect at the 2004 Examination
The scope of questions that can asked of a debtor are broad, but must be limited to the debtor’s finances, assets, and information provided on the debtor's schedules. This includes any financial matters related to any businesses that a debtor owns or runs. The trustee or creditor may also require a debtor to bring additional documents to the examination.
At the exam, you should be prepared to answer extensive questions about the matter that may have caused the trustee or creditor to notice the exam. You should also be prepared to answer questions about entries on bank statements, tax returns, or other financial records. You may also be asked specific questions about the make, model, condition, and estimated value of personal property that you own.
Most 2004 examinations are fact finding efforts, and the trustee or creditor is often not hostile or confrontational towards the debtor. However, because the questions deal with personal finances, many debtors may find them to be somewhat intrusive or invasive. Your attorney will be able to prepare you for the exact questions which may be asked.
Avoiding a 2004 Examination
Many debtors opt to try to resolve the matter with the trustee or creditor, if possible, in order to avoid the 2004 examination. For example, if the trustee is seeking to get an asset from you, you might be able to avoid the exam by agreeing to the value of the asset and making a nominal payment to the trustee.