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Audits of Bankruptcy Petitions to begin 10/20/06


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Taken from http://mcleodlawoffices.com/blog/2006/08/audits_of_bankruptcy_petitions.html

Audits of Bankruptcy Petitions

August 03, 2006 Today’s Consumer Bankruptcy News, a publication for consumer bankruptcy attorneys, had the following headline story:

Get Ready for Random Audits of Debtors: Criminal Referrals will Increase as Schedules Get Scrutinzed

Effective October 20, 2006 one out of every 250 debtors will be audited. However, at a recent conference, an assistant US Trustee confirmed that audits would still be conducted in cases that met certain criteria, such as high debt amounts because the new law requires audits of anyone with unusually high income or expenses. These targeted audits will be directed to debtors whose income or expenses are higher than the “statistical norm.”

If material misstatements are identified, the US Trustee is obligated to report it to the US Attorney. While there is some case law and guidance as to what might constitute a “material misstatement”, there is no case law yet as to why might constitute a material misstatement in the context of this bankruptcy code provision. This is yet an undeveloped area of the new bankruptcy law.

Certainly, some things are easily identified as a material misstatement: concealment of assets, a false oath in a bankruptcy case, false declarations, fraudulent prepetition transfers for the purposes of placing property out of the reach of creditors, and concealment or destruction of financial records are all going to get debtors into big trouble.

While this provision was designed to target abuse, prudent consumer bankruptcy attorneys will be (if they are not already) spending a lot more time verifying the information in bankruptcy documents before they are filed with the court. Debtors hould be expecting higher legal fees.

But for cost-conscious debtors, I have a word of advice: ask the attorney your meeting with what they and their staff are doing to verify the information in bankruptcy filings to ensure that you get through a random audit unscathed. If they do not know what you’re talking about, if they tell you not to worry about it, or if they sit there and stare with a blank look on their face take that as a cue to look elsewhere. You deserve to have your bankruptcy case prepared right the first time.

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