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Among the 3,582 random audits of individual Chapter 7 and Chapter 13 bankruptcy cases in fiscal year 2007, 30% had at least one material misstatement, according to the report released April 30 by the U.S. Trustees Office. The random audits, required under the 2005 bankruptcy law reforms, are part of the oversight of private trustees and enforcement of bankruptcy laws assigned to the U.S. Trustee program. The federal judicial districts with the 10 or more audits, had reports of material misstatements that ranged from 9% to 55%, according to the report. The top districts in the country include: Oklahoma’s Eastern District with 55% of 11 audits; Louisiana’s Middle District with half its 12 audits; Western Louisiana with 45% of 40 audits; Western Tennessee with 41% of 61 audits; Northern Georgia with 41% of 128 audits; Arizona with 40% of 47 audits; Northern California with 40% of 55 audits and Nevada with 39% of 41 audits. A material misstatement indicates the audit found information that challenged the accuracy or veracity of the debtor’s petition or other bankruptcy documentation. Auditors compared selected items on a debtor’s original bankruptcy papers and documents produced by the debtor to the audit firm, according to the report. In addition audit firms also verified information using commercial and publicly available databases to look for unreported assets. The bankruptcy court gives notice to all creditors in the case of a material misstatement identified in the report. In addition, the trustee’s office can pursue a variety of actions, including denial of discharge or the bankruptcy, revocation of a discharge or reporting material misstatements to the local U.S. attorney for potential prosecution. The audit may also result in no action if the debtor corrected the error, the report states.

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