Mesa Bankruptcy Attorney Clint Smith Advises on Audits in a Bankruptcy Case

by Clint Smith
What is (was) an audit in a bankruptcy case?
The United States Trustee’s (UST) Office oversees all bankruptcy cases. When an individual files a Chapter 7 or 13 personal case, a case trustee is appointed to administer the case, collect assets, and pay creditors. In most cases, the case trustee is the only “Authority” you come in contact with.
The case trustees report to the UST, though, and the UST has the backing of the Department of Justice. It’s the UST seal that see when you go the Bankruptcy Court, or to your meeting of creditors.
Until recently, the UST randomly selected cases for an audit. The debtor (person filing bankruptcy) would receive a letter advising them of their selection for that. It has not been very common; I personally have had perhaps three clients audited in the last ten years, out of over 2000 cases we have filed. People would call my office, wondering what went wrong, and often lose sleep over “being audited.” The clients would have to produce mounds of documentation – beyond the three inches of documents that is required in every case – and spend hours working with an “independent” auditor. In our cases, no wrongdoing rose to the level of any action; the audit simply ran its course and the clients went on with their lives. I suspect most audits went that way.
The UST just announced it is doing away with the audit program. I say, good riddance. There were, no doubt, mistakes identified in the information debtors provided, as they are in any audit. But for the expense and stress they caused, relative to the benefit, it did not seem to be worth keeping. Apparently, the UST agrees.
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