When filing bankruptcy the debtor is required to file a bankruptcy petition. The petition includes information about the debtor’s income, assets, creditors and other required disclosures. The debtor files the petition under the penalty of perjury that all the information contained in the petition in true and correct.
The Department of Justice is responsible for overseeing the administration of bankruptcy cases. The United States Trustee Program is a component of the Department. The US Trustee has broad administrative, regulatory, and litigation/enforcement powers. Their mission is to promote the integrity of the bankruptcy system, and part of their responsibility is to audit a select number of bankruptcy cases each year.
The audits are aimed at vetting out fraud and preventing debtors from being dishonest on their bankruptcy petition. If an audited case is found to have inaccurate or fraudulent information, the U.S. Trustee’s office can move to dismiss your case or bring criminal penalties.
Bankruptcy cases selected for audit can be random. The U.S. Trustee’s office must audit at least one out of 250 cases in each federal judicial district annually. Cases can also be selected for audit because there are what the U.S. Trustee’s office would consider “red flags” in the debtor’s petition. These audits are called exception audits. There are a number of disclosures that may flag a case for audit. A bankruptcy attorney can counsel you about these possible red flags. Since a case can be selected for audit at random, there is no way to guarantee that your case will not be audited completely.
Audits allow the U.S. Trustee’s office to monitor possible bankruptcy fraud. If your case is selected for audit, and you are found not to have committed abuse or fraud of the bankruptcy system, then you are still eligible for a bankruptcy discharge.
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In the next Blog, Bankruptcy Audits Part 2, I will address how to deal with an audit and the expectations of the bankruptcy debtor when the case is being audited. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com and let us help you get your life back.
