The United States Trustee is funding the random bankruptcy audit again. They resumed March 10, 2014 after being suspended due to federal budget issues. I find it fascinating they find money for this, but not to extend unemployment. You or the bill collection lobby, which one do you suppose pulls the strings in government?
Before 2005 there was no random bankruptcy audit of consumer cases. With the new law came the requirement that the United States Trustee audit cases for “errors”. The statutory goal is to analyze about one case in 250 filed in each district. The odds are low, but it can happen.
The examination is not done by the United States Trustee. They hire a private accounting firm is. If your case is selected there will be a request for the following items:
- Pay advices for the 6 months prior to petition filing date, plus the month of filing
- Bank statements for 6 months prior to petition filing date, plus the month of filing. You must note on each statement, or on a separate page each and every transaction totaling $500 or more.
- Last 2 filed federal tax returns with all schedules, w-2 forms and 1099s for two years prior to filing.
- Once the initial analysis is complete there might be a second request for more case specific documentation.
There is nothing you can do to prevent an audit since the case selection is random. There are, however, things you can do to lessen its severity on you. These things include:
- make sure you provide your bankruptcy attorney the items listed above BEFORE your case is filed. Your petition must contain accurate and verifiable numbers and not guesses.
- Don’t file chapter 7 if you have high income, or you have excessively high or unusual expenses. Your attorney should be able to guide you with this.
Selection for a random bankruptcy audit is not the end of the world. Of course, if you fail, it can result in dismissal of your bankruptcy case which is never a good thing. The key to success is to prepare your petition accurately and to have the required back up information ready in advance.
Since the 2005 BAPCPA I have had two clients’ bankruptcy cases audited. The most difficult part was back then we did not know in advance what they would request and it took weeks for our clients to produce the documentation. Due to this delay, each reply took a solid week for my assistant to compile and forward to the auditors. As you can probably suspect, having a law office work on your case for 5 days full time can be expensive, and it is.
In each random bankruptcy audit, my clients passed with flying colors. A random bankruptcy audit is an “additional fee” event as it obviously do not happen in every case, and charging for it in advance would be unfair. You can save yourself a huge amount of time, and not a small amount money by complying with my document request before the petition is finalized for filing. That will help with petition accuracy, and if there is an audit request, I can simply forward the information that is scanned, compressed and ready.
PS: I seriously question the randomness of audit case selection. Just about every bankruptcy lawyer I know in Cleveland has had one. I am on my second random case audit. The good news is that the auditors now accept documents online. This saves copying costs and a great deal of time. It has also helped me to streamline the process in my office so that compliance is no longer the expensive proposition it once was.