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Random Audits of Bankruptcy Cases To Resume

by | Jan 13, 2023 | Bankruptcy |

The United States Bankruptcy Administrator for the Eastern District of North Carolina  has announced that audits of consumer debtor bankruptcy cases will resume starting on March 13, 2023.

Consumer bankruptcy cases are subject to random audit and some bankruptcy cases that exceed certain guidelines may also be designated for audit.  If you file bankruptcy, your case is not likely to be audited but the possibility is certainly there. 

The audit program is designed to serve as an added incentive to debtors to ensure that all of the information required for a bankruptcy case is accurately disclosed.  If a case is selected for audit, the auditor will review not only the bankruptcy paperwork but the underlying documents reviewed and used to prepare your bankruptcy paperwork. 

The audit program further stresses that all of your bankruptcy paperwork is important and must be accurate.  So, even though your bankruptcy paperwork is prepared by your attorney’s office, you (as the debtor) are verifying by your signature that the bankruptcy petition, schedules and other paperwork filed with your case is accurate.

As a debtor in bankruptcy, you are required to cooperate with the auditor if your case is selected for audit.  The failure to cooperate with the auditor could result in your case being dismissed or worse.  Therefore, you should keep your records used to prepare your bankruptcy case is important. 

In most instances, auditors do not find any errors or omissions.  In fact, the US Trustee’s most recent report found that approximately 85% of the audited cases were free of any “material misstatements”.  We strive to make sure that your bankruptcy paperwork is accurate so that if your case is selected for audit, it will not be a worrisome affair.

But, if errors, material misstatements, or outright fraud is found by an auditor, there can be serious consequences.  The United States Trustee (or United States Bankruptcy Administrator such as we have in North Carolina) can make a referral to the U.S. Attorney’s office for criminal prosecution or seek to have your discharge denied or revoked. 

It is important that, as a debtor, you be very forthcoming about your financial affairs.  The audit program is a means by which the information that you provided to the bankruptcy case can be verified.  It is not worth the risk of being denied a discharge of your debts or worse just to keep some property.