Chapter 7 Bankruptcy Audit

Anonymous · ‎01-23-2020

Hello folks -
I’ve been following the forum for awhile now and here is my story. Hoping for some feedback and experience.

Let me start off by saying that this is my second bankruptcy. My first one was on discharged on 2010.

Came to some hard times and unfortunately I had to file for chapter 7 after evaluating I could not afford chapter 13.
1. Filed on December 10th and got my 341 January 9th.
2. Today January 23th received notice from my lawyer that I have been chosen for audit. Following documents were requested: December 2019 pay stubs plus latest bank statement for December. In addition, they have requested explanation of 4 checks of $900 value each that I have deposited in my account.

These checks are contractual work my husband was able to do so we were able to cover house property taxes and insurance (all set at quarterly payments) My husband is self employed so this is. Not a steady income. I have provided the Information to my attorney and now I wait.

Has anyone gone thru this or have any positive input. What should I expect? Needless to stay I am pretty freaked out and glass of wine is not helping!

FireMedic1 · ‎01-23-2020

Welcome @Anonymous

Random selection and nonrandom selection are two ways that the U.S. Trustee selects bankruptcy cases for audit.

Random selection. Bankruptcy law permits the U.S. Trustee’s office to randomly audit up to one out of every 1,000 Chapter 7 or Chapter 13 cases filed. It often chooses to audit fewer cases than this. However, it must audit at least one out of 250 cases in each federal judicial district.

Audit based on red flags in the petition. The U.S. Trustee will also audit bankruptcy cases in which the debtor’s income and expenses greatly vary from those of most filers in their filing district.

https://www.nolo.com/legal-encyclopedia/what-is-bankruptcy-audit.html

3...2..1..

BK Free Aug25

Anonymous · ‎01-24-2020

Hi. New to the forum but I wanted to share my experience to hopefully give you some peace of mind. We filed Ch 7 in August. Income was over the median but we passed the means test due to high cost of childcare (2 kids in daycare). Our 341 meeting was scheduled for September 26, 2019. On September 18, 2019 I received word from our attorney that we were selected for audit. Our attorney kept telling me not to worry but I am a worrier by nature and so I worried. We needed to provide additional paystubs and bank statements which we did. In November the auditor requested explanations for all deposits over $500 which we provided. In mid December the auditor requested still more information and informed us that a report of material misstatement would be filed if we failed to provide a sufficient explanation (we had received a social security death benefit after my father in law died and provided documentation to the auditor). To make a long story short, about a week after providing that explanation, our lawyer called us to say no material misstatements found. Best Christmas present ever! My advice to you is to try not to worry. I wish I had listened to my lawyer when she insisted everything would be okay because in the end it was and I wasted three months making myself sick with worry. Wishing you all the best!

Anonymous · ‎01-25-2020

Thanks for sharing your experience.
I provided all documents requested.

My husband is self employed and he was able to pick few extra clients that helped for paying some bills. However since these were checks I deposited to my account, I need to explain origin.
At the time since bills were so pressing we decided to put in my account instead of his. Anyway just shows that situation would have been way worse financially hadn’t been for these extra income. Which is also going to show in our taxes.

My overall debt comes from CC and medical bills or roughly 30K. Our combined income is around 80k! We have two small kids.

I am just waiting now as everything has been submitted.

Anonymous · ‎01-25-2020

I think you will be fine. I really over analyzed the whole thing and thought they would question our explanations and move to dismiss. None of that happened and we got our discharge.

twono · ‎01-25-2020

After reading this, it makes me believe i was under audit, without my attorney actually saying 'audit' when the US Trustee asked for additional docs after my 341 meeting.

The US trustee was there at my 341, and asked me some specific questions....about my 401k withdrawals, about my daughter being an authorized user and if any of my debt, was 'her' debt, and asked if i was/is a business.

A week later, my attorney said the US trustee wanted docs.....401k statements, a credit report, and an explanation and supporting docs for a 5 figure payment to a particular creditor that was made 3 days inside the 90 day threshold of 'preferential payment'. -(had to make an amendment to the filing to show this payment, and all was ok. I don't know if the trustee office made a 'clawback' for that 5 figure payment or not.)

My attorney simply said 'we need to get the US Trustee off our backs, and we'll be fine'.

Hmmm, well if i was audited without knowing and everything turned out ok, i'd say you'll be fine.

Anonymous · ‎01-27-2020

@twono wrote:
After reading this, it makes me believe i was under audit, without my attorney actually saying 'audit' when the US Trustee asked for additional docs after my 341 meeting.

The US trustee was there at my 341, and asked me some specific questions....about my 401k withdrawals, about my daughter being an authorized user and if any of my debt, was 'her' debt, and asked if i was/is a business.

A week later, my attorney said the US trustee wanted docs.....401k statements, a credit report, and an explanation and supporting docs for a 5 figure payment to a particular creditor that was made 3 days inside the 90 day threshold of 'preferential payment'. -(had to make an amendment to the filing to show this payment, and all was ok. I don't know if the trustee office made a 'clawback' for that 5 figure payment or not.)

My attorney simply said 'we need to get the US Trustee off our backs, and we'll be fine'.

Hmmm, well if i was audited without knowing and everything turned out ok, i'd say you'll be fine.

I think the same thing happened to me, as I remember needing to find a bunch of additional docs after I had filed and had my 341.

I thought it was because I had a high income CH7.