US Trustee Suspends Random Audits Indefinitely

The US Trustee’s Office has indefinitely suspended its random audit program effective March 2013.  The random audit program was one of the fraud prevention measures added in the 2005 BAPCPA amendments to the US Bankruptcy Code.  (Wall Street Journal)  The audit program has also been a significant cause of stress and concern for many of my clients.

The purpose of the US Trustee audit program was to identify “material misstatements of fact” in consumer bankruptcy petitions.  The US Trustee’s Office never defined the term “material misstatement.”  In a typical audit, the debtor would receive a letter requesting a routine set of financial documents such as pay advices from the 180 days prior to filing, bank statements from the 90 days prior to filing, and the most recent tax return.  The documents would be sent to an auditor who would review them and cross check them against the petition.  In some cases, there would be a more in depth review.

I’m glad the program is gone – at least for now – because it didn’t produce any results and it only made life harder for people who were already going through a stressful experience.  Besides, the bankruptcy system already has a system in place for catching fraud: the panel trustees.  A chapter 7 trustee who handles hundreds of cases a year and who takes testimony from every single debtor is in a much better position to spot fraud than a random auditor.

For the moment, debtors can rest easy knowing that they won’t be subject to a random audit.  It doesn’t mean that debtors and their attorneys should be any less careful – because the trustees are still there – but at least they don’t have to worry about be subject to an extra layer of random stress.

Leave a Reply