What Happens If My Bankruptcy Case Is Audited?

The most recent changes to the bankruptcy statutes provides that anyone filing bankruptcy could face an audit of their bankruptcy case. If you filed your bankruptcy with a qualified bankruptcy attorney, facing an audit isn’t too much of a hassle but if you filed pro se, you could experience problems. Here’s what you need to know:

Randomly Selected

Your bankruptcy case could be randomly selected for an audit even if you did everything right. One out of every 1,000 bankruptcy cases are randomly selected for an audit. This figure is pretty accurate based on my experience. In the approximately 1,000 bankruptcy cases I’ve filed, I’ve had one client get audited.

Red Flags

Your bankruptcy case is more likely to be audited if there are red flags such as income statements that don’t line up with stated expenses. If you filed your bankruptcy case without an attorney, it is more likely that your case will have red flags that catch the attention of auditors.

Outside Reviewers

If your bankruptcy case is selected to be audited, it will be reviewed by an outside firm. If you filed your case with an attorney, the auditor will contact that attorney about the audit. If you filed your bankruptcy case on your own, they will contact you directly. In both cases, the auditing firm will demand that you or your attorney provide the following records within 21 days:

• Proof of income for the six month period prior to filing bankruptcy. If you’re a wage earner you’ll need to provide pay stubs but if you’re self-employed you’ll need to provide financial statements, contracts, invoices, or other proof of income.
• Your bank account statements for the six months prior to filing bankruptcy. You’ll need to explain any unaccounted for cash deposits or transfers.
  Tax returns for the two years prior to filing bankruptcy.
• Divorce settlements, child support and alimony agreements.

Timely Response

It is important that you provide the requested information in a timely manner. Failure to provide requested documents could have adverse affects on your bankruptcy case. If you filed bankruptcy with an attorney, your lawyer can guide you the process to avoid mistakes. If you didn’t file bankruptcy with an attorney, it’s advisable to get legal advice if you’re facing a audit.


Evidence Of Fraud

The primary purpose of audits is to look for evidence of fraud. The auditors will scour your bankruptcy case looking for any signs that you made materially false statements, illegally transferred assets or cash, or did other illegal things to defraud the bankruptcy system. If evidence of fraud is found, your case could be dismissed and you could face prison time and fines.

To learn more about the bankruptcy process and how it can help you get a fresh start, contact us today.