On February 21st, the U.S. Trustee Program (USTP), which recently announced it will recognize same sex marriages of bankruptcy debtors, placed a notice on its Web site stating that it would resume bankruptcy debtor audits today. The program’s charge is to monitor the bankruptcy system and help investigate bankruptcy fraud cases. According to the notice, the USTP suspended the audit program a year ago due to budget problems, but now it’s back on line. Debtors might be curious what debtor audits are in New York bankruptcy, so here are some answers.
The audit program was established with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 (28 U.S.C. § 586(f)). Its purpose is to detect “any material misstatement of income or expenditures or of assets” in selected debtors’ bankruptcy petitions and schedules. Such “material misstatements” are compiled into a report by auditors and filed with the bankruptcy court and the USTP for the district in which the debtor’s bankruptcy is pending. The clerk of the bankruptcy or federal district court is then required to inform the creditors of the misstatement.
The auditors are independent accounting firms selected by the USTP. The USTP then designates a number of cases to be audited; it’s usually given as a ratio, like one for every 250 cases back in 2006. The ratio fell significantly: By 2011, one out of every thousand cases was audited. The good news is it’s unlikely any one debtor’s case will be examined.
The even better news is that it even if your case is audited, it probably won’t make a difference. Obviously, if you’ve hired an experienced bankruptcy attorney there won’t be any serious defects in your petition and schedules, but more subtly, the Bankruptcy Code never defines what constitutes a “material misstatement.” As a result, for consumer bankruptcies, the report the auditor ends up generating will probably contain only minor errors that won’t affect the bankruptcy case. The other upshots are that you won’t pay for the auditor’s time (which is why the USTP audits fewer cases than it did in 2006), and you won’t be sitting in a windowless room with an adjuster interrogating you over minor details. All you will need to do is produce the copies of the documents, which you’ll end up paying for, lamentably, and the auditors will do all the work in their own offices.
Your bankruptcy will suffer adverse consequences if the “material misstatements” are serious because the USTP is designed to uncover bankruptcy fraud. If this occurs, the USTP might initiate an adversary proceeding against you to revoke your discharge or refer your case to the U.S. Department of Justice for criminal action.
You are advised to read the report the accounting firm produces and files with the court and discuss its contents with your bankruptcy lawyer if you have any concerns.
The full text of the notice can be found on the USTP’s Web site.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices act Bruce Weiner for a free initial consultation.
