If you file for a Chapter 7 or a Chapter 13 bankruptcy, there is a chance that you may be audited by the U.S. Trustee's office. If the office discovers that you have lied or provided inaccurate information in your paperwork, then your case may be dismissed. In some situations, the government will even charge you with criminal fraud, and you will be prosecuted for your dishonesty.
Every year, the U.S. Trustee chooses a number of bankruptcy cases to audit. Audits are a standard procedure performed at random on filers to monitor fraud and prevent filers from lying on their schedules. Like DUI checkpoints in criminal law, audits are a way to hold everyone accountable. While only a small percentage of filers are actually audited, the possibility of an audit keeps most filers from lying on their paperwork.
How the U.S. Trustee Chooses People to Audit
There are two ways that the U.S. Trustee office chooses cases to audit. In some cases, the office simply chooses a case by random selection. Normally, this means that they audit 1 out of 1,000 Chapter 7 or Chapter 13 cases filed. Also, the office can choose to audit a bankruptcy case if the filing came with a variety of red flags. For example, if the debtor's income and expenses vary greatly from most filers in the same district, or if there are possible falsehoods detected, then the Trustee can choose to audit the filer.
Once a bankruptcy case is chosen for an audit, the U.S. Trustee will select an firm to conduct the audit. The firm will then look over the debtor's petition for bankruptcy, their schedules, and all documents included.
Most of the time, the filers are selected to participate in an audit within ten days of filing and an audit firm will be assigned to the case almost immediately. The debtor's attorney will be notified promptly that the bankruptcy case will be audited, and will be notified of what information the audit firm needs to provide. All debtors and their attorneys are legally obligated to participate in the audit and cooperate. The attorney or debtor typically has 21 days to send all the required information to the audit firm.
How the Audit Process Will Go
The audit firm will normally verify the debtor's income, and then look at the claimed expenses and assets in the bankruptcy schedules and statements. The debtor won't incur costs as a result of the audit, except for the expenses that may come from copying documents that the firm requests. The audit firm is looking for any discrepancies and misstatements that may be intentional. For example, if a filer lies about his earnings in order to benefit from the bankruptcy, then this would be a serious crime that could lead to bankruptcy fraud charges.
The audit firm normally has 21 days to complete the audit and submit its report or a Report of No Audit with the court. The auditing firm's report will detail the findings of the audit. Normally, the report will then be sent to the bankruptcy court, where the findings will be reviewed. Any alleged discrepancies are then handled in the bankruptcy report.
If the court finds a misstatement, then the debtor will be required to present evidence justifying the misstatement. If the filer can't do this, then the court may dismiss the debtor's case, deny or revoke the debtor's ability to obtain a discharge, or refer the matter to a U.S. attorney for a criminal investigation.
Learn more about auditing by discussing the process with your bankruptcy lawyer today!