Legal Definitions - debtor's examination

Debtor's Examination

A debtor's examination is a formal meeting that takes place during a bankruptcy case. During this meeting, the individual or entity that has filed for bankruptcy (known as the debtor) is questioned under oath by their creditors.

The primary purpose of a debtor's examination is for creditors to gather detailed information about the debtor's financial situation. This includes:

• Identifying the location and full extent of the debtor's assets (e.g., property, bank accounts, investments).
• Understanding the debtor's financial transactions leading up to the bankruptcy filing.
• Determining whether certain debts can legally be discharged (eliminated) through the bankruptcy process.

This examination helps creditors ensure that all available assets are identified and properly accounted for, and that the bankruptcy process is fair and transparent.

Here are some examples:

• Example 1: Individual Bankruptcy and Undisclosed Assets
  After filing for Chapter 7 bankruptcy, Mr. Henderson claims he has very few assets. However, one of his major credit card companies suspects he recently transferred a valuable classic car to his nephew for a nominal sum, hoping to keep it out of the bankruptcy estate. During a debtor's examination, the credit card company's attorney would question Mr. Henderson extensively about the car, the transfer, and any other significant asset transfers made in the period before filing. This helps the creditor determine if the car can be recovered for the benefit of all creditors and if Mr. Henderson was truthful in his bankruptcy filings.
• Example 2: Small Business Bankruptcy and Inventory
  A small electronics retail chain, "TechZone," files for Chapter 11 bankruptcy. One of its main suppliers, owed a substantial amount for inventory, is concerned that TechZone might have hidden valuable stock in an undisclosed warehouse or sold it off-the-books. The supplier requests a debtor's examination, where TechZone's CEO is questioned about inventory levels, sales records, warehouse locations, and any recent bulk sales. This allows the supplier to verify the company's asset declarations and ensure all assets are available to satisfy debts.
• Example 3: Assessing Debt Dischargeability
  Ms. Rodriguez files for bankruptcy, seeking to discharge a large personal loan she took out just a few months prior to filing, claiming she used it for essential living expenses. The bank that issued the loan suspects she actually used a significant portion of the money for a luxury vacation and expensive jewelry, which could make that specific debt non-dischargeable (meaning she would still owe it even after bankruptcy). During a debtor's examination, the bank's attorney would ask Ms. Rodriguez detailed questions about how she spent the loan funds, requesting bank statements and receipts to verify her claims. This helps the bank determine if they can challenge the dischargeability of that particular debt.