Back in 2005, Congress revamped the bankruptcy code. As part of that effort, lawmakers included provisions aimed at rooting out fraudulent business and consumer bankruptcy filings. Specifically, Congress directed the U.S. Trustee Program, the bankruptcy watchdog organization, to conduct random audits of filings.

But just a few weeks ago, the USTP announced that it is suspending the audits. It blames the action on “budgetary constraints.” What this means for consumers in Arkansas and other states who may be considering bankruptcy as a means to secure debt relief and financial recovery is that bankruptcy documents aren’t going to be subject to as much scrutiny as they had been.

USTP officials say the bite in the budget doesn’t mean the audits are gone. They’re just suspended. They would be expected to resume once funds are restored. But for now, what was a practice of randomly checking one of every 250 consumer bankruptcy filings in each federal judicial district is being shelved.

The audits, handled by independent accountants, typically involved checks of bank statements, paychecks, income tax returns and, if applicable, spousal and child support responsibilities. Consumer credit companies, which lobbied hard to get the audits funded as part of the code overhaul aren’t happy with the suspension. They say the anti-fraud prevention helps keep bankruptcy costs in check, making it more affordable for those who need it most.

There are voices in the legal community who disagree with that view. They say the audits just add time and cost to the process. They say even when issues are identified (and they reportedly are in about 25 percent of cases), they tend not to be acted upon. So what’s the point?

Whether one agrees or disagrees with the value of the audits, what can be learned from all this is that the process is complex. Filing without the help of an attorney can result in errors that could delay obtaining the kind of outcome that bankruptcy is intended to provide.

Source: The Wall Street Journal’s Bankruptcy Beat blog, “Bankruptcy Watchdogs Suspend Debtor Audits,” Jacqueline Palank, April 1, 2013