What You Need to Know About US Trustee Audits of Bankruptcy Cases

The U.S. Trustee Program is responsible for overseeing the administration of bankruptcy cases. As part of this duty, they regularly audit Chapter 7 and Chapter 13 bankruptcy cases. If you’re contemplating bankruptcy, you should know about these audits and what they mean for your case.

Random Audits by U.S. Trustee Program

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 authorizes the U.S. Trustee Program (USTP) to contract with independent firms to audit individual Chapter 7 and Chapter 13 bankruptcy cases. These audits verify the accuracy, truthfulness, and completeness of documents such as petitions, schedules, and other information that debtors must provide under the law.

Cases are selected randomly for audit using a computer-generated random selection process to determine which cases will be chosen. This process ensures that the selection is fair and unbiased and that all cases have an equal chance of being selected.

The USTP also has the authority to select certain types of cases for audit based on specific criteria such as high debt or income levels, suspicious activity, or other factors. In addition, the USTP may choose to audit particular cases if it believes there is evidence of fraud or abuse.

The Purpose of Random Bankruptcy Audits

These audits provide baseline data about fraud, abuse, and error in the bankruptcy system to help identify potential criminal activity and ensure that debtors accurately report their financial information. If your case is selected for an audit, an independent auditor will review your documents and interview you if necessary.

Overall, the USTP’s audit selection process helps ensure that all bankruptcy cases are treated fairly and that any potential fraudulent activity is identified and addressed quickly.

The Bankruptcy Audit Process

If your case has been selected for an audit, you can expect several things to happen during this process:

1. You will receive notice from the trustee informing you that your case has been selected for an audit;
2. You will need to provide additional documents or evidence related to your case;
3. You may be asked to appear at another meeting with the trustee or the auditor; and
4. Your attorney may also be asked to participate in the audit if necessary.

The documents requested will include the following:

• Pay stubs for the six calendar months before filing;
• Two years of federal tax returns, including any schedules and forms;
• Account statements for all depository and investment accounts for the six calendar months preceding the date of the filing of the petition, plus the month in which the petition was filed, along with sufficient documentation to reasonably explain the source of deposits or credits, and the purpose of checks, withdrawals or debits; and
• A copy of any divorce decree and/or property settlement entered within the last three years and any current child support/alimony obligation.

You must cooperate with the audit firm and have 21 days to provide the requested documents. Your bankruptcy discharge may be denied or revoked if you don’t comply with a request. You must work closely with your attorney throughout this process to avoid any potential issues with the court.

The Outcome of a Bankruptcy Audit

Once the audit is complete, the audit firm will issue a report specifying any material misstatements of the identified income, expenses, or assets. Before including a material misstatement in an audit report, the audit firm will contact your lawyer and offer an opportunity to provide an immediate written explanation for any of their concerns.

The audit firm will report to the U.S. Trustee’s Office detailing their findings, which will determine if any fraud or other criminal activity occurred. If not, the judge will issue your bankruptcy discharge.

In some cases, however, the USTP may file an objection to your bankruptcy case if there is evidence of fraud or other criminal activity.

Success in Bankruptcy Require Preparation and Disclosure

Filing for bankruptcy is not a decision that should be taken lightly—but it can offer relief from mounting debts when done correctly. Though an audit can be stressful and unexpected, remember it’s random and doesn’t necessarily mean your case is in jeopardy. Be honest with your bankruptcy lawyer and prepare properly to maximize your chances for success as your head towards debt freedom and the fresh start that bankruptcy provides.