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FAQs About The Chapter 7 Bankruptcy Audit

1 February 2016

Lawrence Ross

In most Chapter 7 bankruptcy cases, once the debts are discharged by the court, the process is over. Unfortunately for some filers, though, the discharges do not mark the end. Each year, the U.S. trustee opts to audit some bankruptcy cases. If you have been notified that your bankruptcy is one of those, here is what you need to know.

Why Were You Selected?

Bankruptcy audits are usually random. The trustee is required to review a certain number of cases each year. How many is required can vary from district to district.

In some instances, the audit is not random. In those cases, the bankruptcy filing raised red flags that triggered a review. For instance, if the income that you submitted on the bankruptcy forms was higher than the median average, you could possibly be subjected to an audit.

What Happens After Selection?

Once your case is selected to be reviewed, you will receive notification. The attorney that you used to help with the filing will also receive notification. If there is additional documentation needed by the U.S. trustee to complete the audit, you will receive an itemized list detailing what is required. You must supply the documentation by the deadline stated on the request.

An audit firm handles the actual process. The firm will review all of the information that was provided in the original filing and the additional documentation that was requested. After reviewing the information, the firm will create a report. Both you and the U.S. trustee will receive a copy of the report.

What happens next depends on the findings of the firm.

What If There Was a Misstatement?

The audit firm will list any discrepancies that it finds as misstatements. If there were none found in your case, the matter is closed and you do not have to worry about future issues resulting from your bankruptcy.

However, if there was a misstatement found, you will be required to submit any documentation that you have that disputes what was discovered. For instance, if the firm found that your income was higher than reported in the bankruptcy filing, you will need to submit any documentation you have that would prove that the information on your filing was accurate.

The U.S. trustee has a few options available to handle a misstatement. Ideally, the trustee would dismiss the case and you would not face any repercussions for the misstatement. The trustee can also recommend that criminal charges be pursued against you for fraud or that your bankruptcy filing be denied.

If you receive notice that you are being audited, consult with your attorney like one from D Derk Demaree Attorney at Law as soon as possible. He or she can help prepare you for the process and ensure that you are properly represented.  

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