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How will changes to trustee audits affect personal bankruptcy?

When Detroit residents make the decision to file for personal bankruptcy and submit the necessary documents, the U.S. bankruptcy court assigns a trustee to their case. This individual works between the filers and the court to help oversee bankruptcies. Although the trustee helps see the bankruptcy process through, they aren't acting on behalf of the indebted person.

When lawmakers changed bankruptcy laws in 2005, there was concern that people weren't honest about their bankruptcy filings. Whether or not concerns about fraud were valid at the time, Congress installed rules for auditing bankruptcies through the U.S. Trustee Program. Since then, the program itself has run into financial trouble and has been suspended for an indefinite period.

In light of this news, a number of observers believe this change may actually help consumers looking for swift, effective debt relief. When an audit is ordered, it holds up the bankruptcy process. Furthermore, many audits determine that there are "material misstatements" in the documents provided to the court. Even though it isn't entirely clear what constitutes this problem, it is often seen as another reason why bankruptcy cases are delayed.

Financially distressed consumers often can't wait around for relief, which is exactly why they make the decision to file bankruptcy in the first place. Waiting several weeks for an audit that won't turn up any discrepancies may become more than just an inconvenience.

Although bankruptcy trustees will not designate cases to be audited for the foreseeable future, it's still important to make sure everything is accurate when filing. The bankruptcy code is immensely complex, so it is helpful to consult with an experienced attorney when preparing to pursue debt relief.

Source: The Wall Street Journal, "Bankruptcy Watchdogs Suspend Debtor Audits," Jacqueline Palank, April 1, 2013

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