Help! Material Misstatement Found in Random Audit.

[teamjuice8]

Our Ch. 7 bankruptcy was randomly audited (in 25 years our lawyer says he's had only 3 of these). The auditor, in his report to the trustee, found a material misstatement - we inadvertently ommitted a number on one of our car values. The correct estimated value was $18K and we had $8K on the schedule. As soon as the auditor asked about it, we immediately sent our explanation, that it was a missing number error. He still reported it as a material misstatement (I thought it was a material misstatement only if there was no explanation or it was intentional) - could be wrong there.

Now the report's been with the trustee for a month, and the lawyer is hardly responding to my questions, like, "Does the trustee have the explanation we offered the auditor?"

Does anyone have any thoughts on this? What are our chances of this getting dismissed based on this particular material misstatement? We knew very little about bankruptcy going in, and never dreamed we'd have to resort to it, but we cannot believe the dark road it's taken us down. Any input would be appreciated.

Thanks everyone.

[dneil]

was it an error on info you gave the attorney, or an error in the way your attorney typed out the papers???

[debee]

Also, how much equity did you have in the car and were you able to exempt all of it? If you had 10K of equity that you couldn't exempt, then it looks bad.

eta: If you were able to exempt all the equity you had in the car (& did exempt it in your original filing), then it's more believable as a copy error.

[wsy]

Team,
I was also audited and had a material misstatement based on the means test and income. It caused delays in closing of the case but was able to rectify and submit the correction. The problem is there will be a summons and a court hearing regarding the material misstatement, Since I filed with a lawyer I did not attend.
Fortunately prior to the court hearing my attorney was able to speak with the US Trustee with the corrections and agreed to let the case be discharged and impose a fine to my attorney.
Your attorney NEED to be proactive on this one prior to you receiving your summons for the court hearing.
This will delay your closing. The case will closed after the material misstatement is cleared up.
I would ask your attorney if he/she will charge extra to represent you. Happy New Year and hang in there.

[AngelinaCat]

When did you file? Have you had your 341 yet? If not, this will be an opportunity to explain the error to the trustee, when you are asked, "is everything on your schedules, true and correct to the best of your knowledge?"

If you have already had your 341, then your lawyer needs to have amended your schedules and corrected the mistake. If he/she is not being responsive to you, you will have to pester him/her until you get a satisfactory answer. We had communications problems with our attorney.

As far as the 'dark path', I guarantee you that all of us finding our way to this board have felt exactly the way you do right now. My DH and I were absolute imbeciles--and our attorney did very little to educate us in the process. As a result we many huge mistakes that could have been avoided, had she done her job, and we found this board BEFORE we filed.

Good luck to you; it WILL get better.

[teamjuice8]

Thanks for your response. We know what the amount was supposed to be, but we didn't get copies of what we turned in, so we don't know how the car value amount went from $18K to $8K. The para did miss a couple of other things that I corrected. When I was at the office, I was told to go over it and see if everything looks right. Obviously, I missed the mistake, regardless of who is at fault (likely saw the "8" and moved on) moving through the paperwork. We had about $7K in equity in the car at the time. We exempted it (although we reaffirmed that debt).

[teamjuice8]

We had the 341 back in October, and the trustee was good with everything and granted the discharge. Then we were audited. As soon as the auditor submitted the report, we filed an amended schedule with the correct value for the car. After that, we don't know what has happened at the trustee's office. He should have received our explanation and amended schedule, but I don't know if he ever received the explanation. The auditor asked repeatedly for the same documents we'd already submitted to him, so we were concerned from the start that details were being missed. I just don't know if the attorney will make any more effort at this point. It was an absolute honest mistake (whether it was ours or not), and I can't imagine how to respond if our case is dismissed because of this. Thanks for your responses and your concern.

[debee]

There's a paper published out of the Executive Office of the UST called, "Top Five Myths of an Audit". Have you read that?

One of the points raised is that several factors go into determining whether a misstatement results in an enforcement action such as whether you promptly amend your schedules, whether there was potential impact on case administration, and whether you acted recklessly or with intent to deceive.

It sounds to me like you will be fine. One mistake is definitely not reckless, the error doesn't change anything in terms of the admin of your case, and you had nothing to gain by the error so no motive for deceit.

Top Five Myths (if you're interested and haven't read it): http://www.justice.gov/ust/eo/public...abi_200901.pdf

eta: Presuming you exempted 7k and the other 11k was loan.

[tcreegan]

Hi teamjuice,

First of all, congratulations on being the 1 in 2000 random audit winner

thought it was a material misstatement only if there was no explanation or it was intentional ....misstatement means an error; material means it makes a difference in the calculating. (as opposed to immaterial) ...so nothing about intent, not implying fraud,

Random audits are usually done by an outside accounting firm contracted by the US Trustees office. Most auditors are strictly numbers on paper kinda people. Not usually interested in intentions, explanations they want is where did you put this number, or why doesn't this section of numbers not add up to exactly the same as section Z on page X When they get their report done, it goes to the US Trustee who can rubber stamp it A-OK or they can quibble about something with you.

To ease your mind a little, random audits are not really designed to catch crooks, it is a quality control measure to see how the entire BK process is working out. Random audit data gets collected across the country, where were the most mistakes, where were the worst mistakes, what % did this, what % did that, etc.

Yet for all its noble purposes, it is still a stressful pain-in-the-gluteus maximus

Hang in there!

Tom in Colo

[Flamingo]

Once one signs final BK papers for filing (we thoroughly reviewed ours but there were no errors), one specifies that the information is correct. Since you signed your BK papers and indicated the information listed was true and correct, you will now have to prove otherwise (whoops, missed that) and since you are represented by an attorney, it is up to them to handle the situation. Of course they will look for fraud. It will probably just cause a delay as to your matter and your attorney should keep you posted. A month delay is nothing in the legal world. Just stay in touch with your attorney's office for updates.