Recently I attended a seminar provided by the Central District of California Bankruptcy Attorneys Association in Los Angeles, CA. The presentation was by the Local United States Trustee Peter Anderson. The United States Trustee oversees the bankruptcy trustees assigned to your bankruptcy cases. Mr. Anderson said he takes his orders from Washington, D.C. and carries out the wishes of his client the United States Trustee. Here are some of the items discussed:
The Government will soon start the “audit program” again. These are the random audits of chapter 7 and chapter 13 cases done from the debtor and debtor’s attorney’s files.
Mr. Anderson said that his office did not know which debtors would be audited and only finds out after random debtor is selected. He did say that if your client is picked, to respond to the inquiry letter. The Government Accounting Office sends letters seeking information from the client and the attorney. If there is no response, the case could be dismissed. So respond to the inquiry letter.
When the Government Accounting Office performed the audits the last time, about two or three years ago. The GAO found that there were “material misrepresentations of income” in nearly half the cases audited. The material misrepresentation has a significant effect on the means test. If the income is understated, then the debtor may trigger a presumption of abuse and may be forced into a chapter 13 or the case could warrant a 707(b)(2) abusive filing motion.
These audits will start as of mid-March 2014. In the past about one in 250 cases was selected. The criteria has been providing the following:
Last six months of all bank
Last six months of brokerage accounts
Last two years of tax returns
Last six months of pay stubs
Then the auditors may ask for extra information if there are unusual expenses or other issues.
The Practice Pointer here is to have this information in your file, before you file the case as it is difficult to get it from your client after you file the case. The information above is important to build your file and should be in every file in order to see if a client is a chapter 7 or chapter 13 client.