Bankruptcy Audits

The term audit—a word that is defined as an objective and usually independent examination and evaluation of the financial statements of an individual or organization to ensure that the records are as accurate as they claim—it is usually associated with actions by the Internal Revenue Service (IRS). While IRS audits are certainly more common, the overhaul of the Bankruptcy Code with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) led to the United States Trustee Program (USTP) requiring a certain number of bankruptcy cases filed in each judicial district to be audited by an independent public accountant or audit firm.

Under BAPCPA, the USTP must randomly select at least one out of every 250 cases in each Federal judicial district for audit. Cases involving certain "red flags" may also be selected for an audit. While people have understandable concern when informed about the possibility of being audited, most individuals have no reason to worry so long as they were honest and truthful about their financial situations.

Attorney for Bankruptcy Audits in Cincinnati, OH

If you have been notified that your case has been selected for a bankruptcy audit in Ohio or Kentucky, it is in your best interest to retain legal counsel as soon as possible. Steiden Law Offices helps consumers get a fresh start and overcome all of their debt problems.

Our Cincinnati bankruptcy lawyers have handled tens of thousands of bankruptcy filings in Northern Kentucky and Southern Ohio. Call today to have our attorneys provide a complete evaluation of your case during a free initial consultation.

Northern Kentucky Bankruptcy Audits Information Center

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Ohio Bankruptcy Audit Process

Chapter 7 and Chapter 13 cases are selected for audit pursuant to § 603 of BAPCPA. Cases are selected either randomly (one out of at least every 250 cases filed for the district) or based upon a debtor’s income or expenses having a greater than average variance from the statistical norm for the district.

Bankruptcy audits (also referred to as debtor audits) are performed by independent firms selected by a United States Trustee using auditing standards developed by the USTP, published in the Federal Register, and posted to the USTP’s website. The Office of United States Trustee sends a letter to either the debtor’s attorney or a debtor representing his or herself in a bankruptcy proceeding, indicating that a case has been selected for audit, enclosing a form for the attorney to indicate whether the audit firm can directly contact a represented debtor about documents, and an information sheet about the audit for the debtor.

The letter also identifies the firm that will be conducting the audit and the documents that must be produced to such audit firm. Documents generally include the following:

  • Pay stubs for the six calendar months prior to filing;
  • Two years of federal tax returns, including any schedules and forms;
  • Account statements for all depository and investment accounts for the six calendar months preceding the date of the filing of the petition, plus the month in which the petition was filed, along with sufficient documentation to reasonably explain the source of deposits or credits, and the purpose of checks, withdrawals or debits; and
  • A copy of any divorce decree or property settlement entered within the last three years, and any current child support or alimony obligations involving the debtor.

Debtors have 21 days to provide audit firms with the requested documents. When an audit firm completes an audit, it will issue a report detailing its findings. The audit report itself carries no legal requirements, but the United States Trustee may take civil action or make a criminal referral to the United States Attorney.

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Material Misstatements in Kentucky Bankruptcy Audits

In many bankruptcy audits, the auditing firm will find at least one "material misstatement"—an inaccuracy or omission that compromises the integrity and reliability of the bankruptcy documents filed. Some common examples of material misstatements include, but are not limited to:

  • Concealing assets;
  • Making false statements;
  • Failure to keep records;
  • Incomplete or missing records;
  • Unusual depletion of assets shortly before or after bankruptcy filing; or
  • Fire, theft, or other loss before or after bankruptcy filing.

When an auditing firm discovers a material misstatement, the debtor must provide evidence explaining the misstatement to the audit firm. If a debtor is unable to satisfactorily explain a material misstatement, it can result in his or her bankruptcy case being dismissed, the bankruptcy court denying or revoking the debtor's ability to discharge the debts, or the auditing firm referring the matter to the U.S. Attorney for criminal investigation.

The surest way to avoid bankruptcy audit issues is to make sure to seek the help of a Cincinnati bankruptcy lawyer before filing for Chapter 7 or Chapter 13. Your attorney can aid in ensuring that all information you submit is completely accurate and minimize the chances of you being audited.

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Ohio Bankruptcy Audit Resources

Debtor Audit Information | USTP | Department of Justice — Every year, by delegation from the Attorney General, the USTP issues an annual public report on the aggregate results of audits of individual chapter 7 and chapter 13 cases. Results include the percentage of cases, by district, in which a material misstatement of income or expenditures is reported. Under the Reports & Studies section of this website, you can access public reports for each fiscal year since BAPCPA's passage.

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 — View a July 2006 issue of the United States Attorneys' Bulletin discussing numerous aspects of BAPCPA. Read more about the history of BAPCPA, means testing and preventing abuse by consumer debtors, and selected new consumer provisions to BAPCPA. You can also find information about the automatic stay, impact on federal taxes, and other new provisions.

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Steiden Law Offices | Cincinnati Bankruptcy Audit Lawyer

Did you receive notification about your case being selected for a bankruptcy audit? Don't panic. Contact Steiden Law Offices as soon as possible.

Our Cincinnati bankruptcy attorneys represent individuals all over Boone County and Kenton County in Northern Kentucky as well as Hamilton County in Southern Ohio. You can have our lawyers review your case and help you understand all of your legal options when you call or fill out an online contact form to schedule a free, confidential consultation.

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