How to Prepare for an Adversary Bankruptcy Proceeding

Three Parts:Facing a Rule 2004 ExaminationHiring an AttorneyNavigating the Discovery Process

An adversary proceeding in bankruptcy court is a separate civil lawsuit related to your bankruptcy case. While it can be filed by anyone with an interest in the bankruptcy proceeding, including the debtor, typically adversary proceedings are filed by creditors or trustees against the debtor, alleging some sort of fraud or irregularity in the way you transferred assets prior to initiating your bankruptcy proceeding, or that certain debts are not dischargeable for another reason. To prepare for an adversary bankruptcy proceeding, get a handle on the nature of the complaint and the implications of the proceeding if you lose. Understand that an adversary proceeding often is preceded by a Rule 2004 examination, and may require you to hire an attorney.[1][2]

Part 1
Facing a Rule 2004 Examination

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    Receive an order. If a creditor or other party believes there may be some grounds to file an adversary complaint, they typically first will file a motion with the bankruptcy court requesting a Rule 2004 examination.[3][4]
    • This examination, broad in scope and similar to a deposition, is named after the number of the bankruptcy procedural rule that allows it. Your bankruptcy judge will order a Rule 2004 examination on motion from any interested party.
    • While they must have good cause and can't use the examination just to harass you, bankruptcy rules do not require you to receive any notice of the motion or have any opportunity to contest it.
    • Therefore, the first you hear of this examination typically will be when you are served with an order issued by the bankruptcy judge that grants the motion and compels you to appear for the examination.
    • Rule 2004 examinations have an extremely broad scope, and for this reason are often referred to by bankruptcy attorneys as "fishing expeditions." Creditors often use these examinations to determine if there is sufficient evidence to file an adversary proceeding.
    • If you receive an order compelling your attendance at a Rule 2004 examination, you should expect that an adversary proceeding may follow.
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    Review the local rules. While the federal bankruptcy rule governing the examination is extraordinarily broad, the local rules of the bankruptcy court where you filed your bankruptcy may include substantial limitations on the examination.[5]
    • If you hired an attorney for your bankruptcy proceeding, they typically will also assist you in preparing for the Rule 2004 examination. Ask your attorney if the scope of the examination is limited by any local rules.
    • Local rules also dictate procedures for examinations, so even if you have an attorney, it's important to be familiar with the rules yourself so you have an idea of what to expect at the examination.
    • You typically can find the bankruptcy court's local rules by visiting the website of the bankruptcy court where your bankruptcy case was filed.
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    Produce the requested documents. As part of the examination, the requesting party may demand production of nearly any documents related to your finances, debts and obligations, assets, or other matters regarding your bankruptcy.[6][7]
    • Typically your attorney will be provided with a list of the types of documents the party requesting the Rule 2004 examination wants. Some of these documents you may already have produced in conjunction with your bankruptcy proceeding.
    • Any additional documents not previously produced for your bankruptcy will have to be gathered and submitted to your attorney for review. Your attorney will make copies and deliver copies to the party who requested the examination.
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    Attend the examination. The Rule 2004 order compels your attendance at the examination, which is similar to a deposition. The examination is typically held at the bankruptcy court and is conducted under oath.[8][9][10]
    • Your attorney will meet with you ahead of time to help you prepare for the examination, but don't expect to be able to go over everything you might be asked.
    • A 2004 examination can cover nearly anything related to your bankruptcy, including your actions or conduct immediately before filing bankruptcy, your debts and general financial condition, and anything that affects your right to a potential discharge of the debts at issue.
    • Since actions contesting the dischargeability of a debt are among the most common adversary proceedings in bankruptcy court, creditors may use a Rule 2004 examination prior to filing an adversary complaint.
    • Unlike any other conferences or meetings you've attended in conjunction with your bankruptcy, you should expect a Rule 2004 examination to last several hours – potentially all day.

Part 2
Hiring an Attorney

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    Receive an adversary proceeding complaint. If a creditor decides, as a result of information acquired through a Rule 2004 examination, to file an adversary proceeding, you will receive a complaint that lists the creditor's allegations against you.[11][12]
    • If you have an attorney for your bankruptcy, the complaint may be served on your attorney rather than on you personally.
    • However, it's important to remember that not all bankruptcy attorneys have experience with adversary proceedings, since many bankruptcies are completed without these additional lawsuits.
    • When you are served with the adversary proceeding complaint, have a frank discussion with your bankruptcy attorney regarding their experience with bankruptcy litigation.
    • If you need to hire another attorney, you'll have to act fast, since your answer is due only a few weeks after you are served with the complaint.
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    Search for a bankruptcy litigation attorney. While the attorney handling your bankruptcy may also handle the adversary proceeding, not every bankruptcy attorney is experienced in bankruptcy litigation, so you may need to find someone else.[13]
    • The first thing to do is seek recommendations from your bankruptcy attorney. Even if they don't handle adverse proceedings, someone else in their firm might – and generally, the benefits of having both attorneys work in the same firm would outweigh any costs.
    • However, if your bankruptcy attorney is a sole practitioner, you may want to seek out a bankruptcy litigation specialist. Ask your attorney for recommendations, but do your own search as well.
    • You may want to look on the website of your state or local bar association. There typically is a searchable directory of licensed attorneys in your area, and you may be able to search within the bankruptcy specialty section to narrow your results.
    • When you find some names, run them by your bankruptcy attorney. If you have someone on your list that your attorney has a poor opinion of, or with whom they don't get along, you're probably better off scratching them off your list.
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    Interview several candidates. If you're hiring another attorney to handle the adversary proceeding, ideally you want to interview at least three attorneys so you can make an informed decision on who can best represent your interests.[14]
    • In preparation for your interview, each attorney likely will want information about you, your financial information, and your pending bankruptcy proceeding. You can gather the necessary information with help from your bankruptcy attorney.
    • Treat your meeting with each attorney like a job interview, and ask each of them extensive questions to get an understanding of their experience with adversary proceedings in the bankruptcy court where your pending bankruptcy was filed.
    • An attorney will be most beneficial to you if they are familiar with the local rules of that particular court, and have litigated before the judge assigned to your bankruptcy case.
    • You also want to find out how much experience each attorney has with adversary proceedings similar to the one you face, and what the outcomes of those other proceedings were.
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    Compare and contrast the attorneys. After you've finished your interviews, make a chart of the positive and negative qualities of each attorney so you can pick the one who is best suited to represent you in the adversary proceeding.[15][16]
    • Fees typically will be a big concern, but they shouldn't be your first or only concern. You should compare estimated fees to the cost to you if the plaintiff prevails in their adversary proceeding – this is the true cost to you of litigating the adversary proceeding without effective counsel.
    • You also want to place a high value on how each attorney will potentially work with you and how comfortable you felt with them. If the attorney talks down to you, or you find them insulting or intimidating, it will be difficult for you to work with them effectively to achieve the desired result.
    • Keep in mind that you already are in a fairly vulnerable position, having filed for bankruptcy, and the adversary proceeding could place your pending bankruptcy in jeopardy or seriously limit the benefit you would get from any bankruptcy belief.
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    Sign a written contract. The attorney you choose should present you with a written retainer agreement before doing any work for you. Read the agreement carefully and make sure you understand its terms before you sign it.[17]
    • If the attorney you choose to represent you in the adversary proceeding works in the same firm as the attorney for your pending bankruptcy, the retainer likely will be truncated and have terms similar to those of your other attorney.
    • The other benefit of hiring an attorney in the same firm is that you likely will only get one bill from the firm for work done by both attorneys.
    • If you're going with an attorney in a different firm, read the retainer agreement carefully and make sure you understand how the fees are calculated and when payment is due.
    • Once you've signed your retainer agreement, the attorney likely will have to move fast to file an appearance and answer to the adversary complaint before the deadline lapses.

Part 3
Navigating the Discovery Process

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    Evaluate the complaint. An adversary proceeding in bankruptcy court is similar in form to a civil case, and begins with a complaint filed against you that outlines the allegations against you and what the plaintiff wants the court to do as a result.[18][19]
    • In one type of adversary complaint, a creditor tries to prevent their debt from being discharged in your bankruptcy – often alleging that you incurred the debt fraudulently.
    • These complaints typically allege that you incurred the debt after you were already insolvent or contemplating bankruptcy, with the idea that you wouldn't have to pay back the debt because you could discharge it in bankruptcy.
    • If the creditor is able to prove that you incurred the debt in anticipation of bankruptcy, with no intention of repaying it, you won't be able to discharge that debt.
    • Another common type of adversary proceeding concerns fraudulent transfers. This complaint may have been filed by a creditor, but more frequently is filed by your bankruptcy trustee.
    • A fraudulent transfer complaint alleges that you transferred assets to another party in anticipation of bankruptcy, with the intention of shielding those assets from liquidation to pay your debts.
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    File an answer. As with any other civil case, you must file an answer to the complaint that responds to each of the allegations listed in the complaint and lists any defenses or counterclaims you want to assert against the plaintiff.[20][21]
    • Your attorney will go over your financial information with you and determine whether to admit or deny each of the allegations made against you.
    • Keep in mind that if you deny an allegation in an answer to a complaint, you aren't saying it's not true. Rather, you're forcing the plaintiff to prove it.
    • For this reason, your attorney likely will recommend that you deny most, if not all, of the allegations in the complaint – particularly if the plaintiff is alleging fraud, which is very difficult to prove.
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    Gather documents and information. Although an adversary proceeding is conducted in bankruptcy court, the discovery process is similar to that in any federal civil case. Typically, you will receive discovery requests for documents and information related to the adversary proceeding.[22][23]
    • The types of documents you'll need will differ depending on the allegations in the complaint. For example, if the complaint alleges actual fraud, the plaintiff must prove that you made a transfer with the intent of defrauding the bankruptcy court and your creditors.
    • If constructive fraud is alleged, on the other hand, the plaintiff doesn't have to prove you had any fraudulent intent. To prove constructive fraud, the plaintiff likely will request documents related to the transfer they allege is fraudulent.
    • If you were insolvent at the time the transfer was made, and you didn't receive reasonable or fair market value for the transfer, the plaintiff may be able to show constructive fraud.
    • For constructive fraud allegations, you typically must produce documents showing what you were paid for the property you transferred.
    • For example, if you sold your car to your sister a few months before you filed for bankruptcy, you would need to produce documents proving your sister paid fair market value for the car is you wanted to defeat a charge of constructive fraud.
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    Respond to discovery requests. Your attorney will prepare formal responses to the discovery requests from the plaintiff, along with copies of the documents requested, and submit them to the plaintiff.[24][25]
    • The discovery process in an adversary bankruptcy proceeding is similar to the discovery process in a regular civil suit. In fact, the bankruptcy rules incorporate the federal rules of civil procedure to govern adversary proceedings.
    • As part of discovery, the plaintiff may want to depose you. If you receive notice of a deposition, your attorney will go over the topics that can be covered and attend the deposition with you.
    • Unlike a Rule 2004 examination, depositions after an adversary proceeding has been filed are substantially limited, and the plaintiff's attorney will only ask you questions that are directly related to the allegations in the complaint.
    • If the party filing the adversary proceeding has already conducted a Rule 2004 examination, you likely won't be deposed for the purposes of the adversary proceeding because they will already have any information they could possibly obtain during a deposition.
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    Develop your defenses. You also may make discovery requests of the plaintiff as you work with your attorney to build arguments and plan your defense against the plaintiff's allegations. Ultimately, an adversary proceeding ends with a hearing in front of the bankruptcy judge.[26][27]
    • The hearing will be held before the bankruptcy judge who was assigned to your pending bankruptcy case.
    • Before the hearing is scheduled, you and the plaintiff will exchange information, witness lists, and documents to be used as evidence at trial.
    • At the hearing, both you and the plaintiff will have the opportunity to present arguments to the judge regarding why the debts at issue should or should not be discharged in bankruptcy.

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