Help Facing a Bankruptcy Audit

IRS Audit While in Bankruptcy

Many debtors panic when they think about the possibility of a bankruptcy audit. But really there is no need to panic as long as you have not willfully withheld important information in your bankruptcy case. Statistically, there are significantly less bankruptcy audits that there are IRS audits. In 2009, only 1 out of every 583 bankruptcy cases where audited while one in 100 tax returns faced an IRS audit. 

What You Need to Know If You Are Facing a Bankruptcy Audit

That being said, here are few things debtors should know about bankruptcy audits:

  1. About 50 percent of bankruptcy audits are selected randomly and the rest are audited because something about the bankruptcy case stood out as irregular and the bankruptcy court just wants to make sure everything is “above board.”
  2. If you are selected for a bankruptcy audit you will be notified within 10 days of filing your bankruptcy petition. So generally speaking you don’t need to worry about an audit after your bankruptcy case is well underway.
  3. After the bankruptcy case is selected for an audit, a private audit firm is hired. The auditors will examine and scrutinize the debtor’s bankruptcy filing, including all of the listed debts, assets and expenses and income. They will also do a search to see if there are any assets under the debtor’s name that were not listed in the bankruptcy filing.
  4. The findings of the bankruptcy audit will be submitted to the bankruptcy court.

What often happens is that the auditors will find at least one “material misstatement” in the bankruptcy filing. A material misstatement is inaccurate information or an omission that impacts the bankruptcy case in a significant way. This could be as simple as misstating your income because you made an accounting mistake or as big as not mentioning the farm property you own in another state. If the material misstatement was unintentional there will usually not be any negative consequences, however if the material misstatement is intentional it could result in the dismissal of the bankruptcy case or even a bankruptcy fraud charge.

Have Any Questions About Audits and Bankruptcy? Let us Know

If have any questions regarding bankruptcy audits feel free to let us know. You can set up a free consultation with us by either calling or filling out our contact form .