US Trustee Suspends Random Bankruptcy Audits

Back in 2005, lobbyists for big banks convinced Congress that rampant abuse plagued the federal bankruptcy system. Congress bought into this theory and passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Congress sought to curtail consumer bankruptcy abuse with a number of “safeguards” which in hindsight have proven costly and unnecessary. As part of these safeguards, Congress directed the United States Trustee Program (USTP) to establish procedures for conducting random audits of bankruptcy petitions, schedules, and other information in consumer bankruptcy cases.

These audits have proven expensive for the USTP and on March 20, 2013, the USTP indefinitely suspended all random audits of bankruptcy debtors. In fiscal year 2012 the USTP paid independent accounting firms to audit over 600 cases. These independent auditors found that bankruptcy debtors had made material misstatements in only 16% of these cases. A material misstatement indicates the audit produced information that challenged the accuracy, veracity, or completeness of a debtor’s petition, schedules, or other filed bankruptcy documentation.

The bankruptcy process requires the debtor to disclose all assets, debts, income and expenses. Any “material misstatement” is usually the result of an oversight, like a debtor failing to list a savings account with a $200 deposit. The typical bankruptcy debtor is at the end of his or her rope and often under a great deal of stress when preparing for bankruptcy. Debtor attorneys have known all along that the vast majority of bankrupt individuals are looking for a fresh start, not a head start.

If you need an honest and legal fresh financial start, consult with an experienced bankruptcy attorney. Your attorney can explain how the federal bankruptcy laws can help you restructure your finances and get the relief you need.

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