The consumer credit industry lobbied Congress hard several years back for anti-debtor changes it wanted seen in the federal bankruptcy laws, with those pushing for stringent adjustments saying that too many consumers were committing fraudulent acts in the bankruptcy system.
Congress responded to that powerful and affluent voice when it materially revised the Bankruptcy Code in 2005, providing for random audits of consumer debtors.
Specifically, a progam within the U.S. Department of Justice – the U.S. Trustee Program – was established pursuant to which trustees were tasked with selecting one consumer out of every 250 persons filing for bankruptcy for auditing in each federal judicial district. Those selected were audited by outside accountants.
The program initially worked as intended, with the requisite number of persons selected for auditing actually being audited during the program’s first year. Subsequently, though, and in successive years following 2007, budget limitations curtailed the auditing process. In 2011, only one of every 1,700 bankruptcy filers underwent an audit.
The program has now essentially eroded away, with the DOJ stating that is has been “indefinitely suspended.”
Although that is being lamented by, predictably, some prominent voices within financial companies, many critics of the program essentially denote its curtailment as good riddance and long overdue.
Henry Sommer, a former president of the National Association of Consumer Bankruptcy Attorneys, says that the audits were time-consuming, complicated and expensive for consumers, with many of those people already suffering severe economic constraints. Sommer says that the audits have been “a real hardship.”
Government officials have not stated whether the program will ever again be continued. A number of consumer advocates hope that its suspension equates to the initiative’s permanent disappearance.
Source: Wall Street Journal, “Bankruptcy watchdogs suspend debtor audits,” Jacqueline Palank, April 1, 2013
