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Natural Disasters like Hurricane Sandy can Lead to Increase in Bankruptcy Filings

Hurricane Sandy devastated some parts of the East Coast. Homes and businesses were destroyed. Some are left without a place to live. Some businesses will be closed for months.

Storm damage across a neighborhoodEarly estimates of the damage are in the billions, but the true financial impact may not be known for some time. The pace of the cleanup effort will impact businesses, jobs, and economic recovery.

For some, Hurricane Sandy and other natural disasters like it don’t just represent a loss of property. Natural disasters that cause as much damage as Sandy did can cause devastating financial loss that can lead to bankruptcy.

First, these natural disasters can destroy personal property and possessions. While some homeowners may be protected by insurance, many others only carry basic protection, which may not cover damages from a natural disaster. Still others may only be renting their homes, and may not carry renter’s insurance to protect against damages.

Not only can a natural disaster wipe out a person’s home, but it can also destroy valuable personal possessions. When the tally is totaled for the home, cars, and personal items, the damages could be hundreds of thousands of dollars. Few of us have that kind of money in our savings, and without good insurance to cover those damages, few of us would be able to withstand that kind of financial blow.

Second, as Hurricane Sandy showed, natural disasters can shut down businesses for months, leaving some workers without a way to earn a wage. Without savings, a few months without a steady income can be a financial blow to anyone. For some, it could mean losing everything.

Many who are in the path of devastating natural disasters like Hurricane Sandy may find relief from the overwhelming financial stresses through bankruptcy. Depending on the extent of the debts you face as a result of the natural disaster, the type of debts, and your income, you may be able to eliminate some of the debts and seek a fresh financial start.

North Carolina Bankruptcy Lawyers

At the Law Offices of James Scott Farrin, a North Carolina Board Certified Specialist in Consumer and Business Bankruptcy Law may be able to help you find debt relief through bankruptcy. Call 1-866-900-7078 for a free evaluation of your case.

What You Can Do to Prevent Future Bankruptcies

No one ever wants to be in a position where they have to consider filing for bankruptcy, and most do so only as a measure of last resort. However, according to the U.S. Courts, those who file for bankruptcy have a 1 in 3 chance of filing again.

Though bankruptcy may be your best option for debt relief it’s safe to say that no one wants to wind up in the same position having to consider bankruptcy because they are facing seemingly insurmountable debts and creditor harassment. Fortunately, there are many things you can do to reduce the likelihood of filing for bankruptcy for a second time. Here are a few ideas for how you can prevent future bankruptcies:

Set a Realistic Budget

It is important to have a realistic sense of your finances in order to avoid taking on debts that may lead to your needing to file bankruptcy. Make a list of all your expenses — not just the ones you hope to limit yourself to, such as rent and utilities. If you know you won’t be able to stop eating out or going to the movies, make sure you budget a line item for these things and then limit the number of outings you have to save.

When calculating your budget, also be sure you have realistic expectations about your income. Set your budget based on your current income — not what you hope to be making after an expected promotion or bonus (which may never come).

Create an Emergency Savings Fund

The unexpected can happen, and it’s usually what leads to situations that cause you to consider bankruptcy. Many people have lost their jobs in this economy — jobs they have held for years. Others have been sidelined by unexpected medical bills after an illness or injury. Some face having to start over after a divorce.

While you can’t prepare for every possibility, you can create an emergency savings fund that will provide a cushion when the unexpected happens. Aim to save enough to cover at least six months of your salary.

Be Cautious with Credit

Many people who file for bankruptcy have high credit card debts. Sometimes the credit card debt is the cause of the financial struggle that led to filing bankruptcy. Sometimes, other overwhelming financial circumstances have led to the need to use credit in order to cover basic living expenses.

Once you start to accumulate a lot of credit card debt, it can be difficult to pay it off as high interest rates compound the debt. Reserve credit card use for emergencies only or limit their use to purchases for which you have the cash ready to pay off at the end of the month.

Get Good Insurance

A major illness or injury is one of the common reasons that people find themselves in over their heads in debt and considering bankruptcy. While you can never protect yourself against all possibilities, you can reduce your risks by getting a good insurance policy that will pay your medical expenses if you are injured or become ill.

Insurance won’t protect you against all losses. Depending on circumstances and your policy, you may not be covered for lost wages, long-term disability, or even all of your medical care. However, having a good insurance policy will minimize your losses and protect you from dire financial circumstances.

The unexpected happens, and bad things happen to good people. You can’t insure that you won’t ever have to face overwhelming debts. However, you can take steps to minimize your risks so that if you’ve already had to file for bankruptcy, you can reduce your chances that you will have to file again.

Of course, if you are unsure about your options, you can always call a North Carolina bankruptcy lawyer at the Law Offices of James Scott Farrin to review your case and get tailored legal advice. Call 1-866-900-7078 right now for a free evaluation of your case!

5 Reasons You Should Consider Filing for Bankruptcy

The decision to file bankruptcy is a deeply personal one that can have a big impact on your life. If it’s the right decision for you, it could give you the relief you need to get a fresh financial start and to start taking back your life from the stress and anxiety that overwhelming debt has caused you.

There are many reasons why you might consider filing for bankruptcy, depending on your personal circumstances, including your total debts and your income.

Here are 5 of the top reasons why you might consider filing for bankruptcy:

You Have Excessive Credit Card Debt

 woman holds head pondering whether to file for bankruptcyCredit card debt compounds over time, with high interest rates making it difficult for you to pay down the principal and get out from under the debt. If you qualify for a Chapter 7 bankruptcy, you can discharge all your credit card debt. If you have high credit card debts, bankruptcy can offer you a great deal of relief.

You Have Excessive Medical Bills

If you are injured or become seriously ill, your medical bills can add up fast. Similar to credit card debt, medical bills are almost always unsecured debts. If you qualify for a Chapter 7 bankruptcy, you can eliminate these debts and get relief.

You are Behind on Your Mortgage

If you lose your job or become mired in debt, you may fall behind on your mortgage. Bankruptcy may be able to save your house and help you to catch up on missed payments. A Chapter 13 bankruptcy filing can reorganize your debts and offer you a payment plan, allowing you to include past due mortgage payments. Of course, you will have to pay on the past due amount while also paying your current mortgage payment.

You are Being Harassed by Creditors

When you start to get in over your head in debt, it can feel like you are being hounded by creditors. You may start to dread answering the phone or opening your mail. When you file for bankruptcy, your creditors are prohibited from contacting you about your debts. All the letters and phone calls must stop. If they continue to contact you after you file, you may be able to file legal action against them.

You Have Exhausted Your Options

Bankruptcy is often a measure of last resort for many people. Many try to work out a repayment plan with their credit card companies and mortgage companies but either have no success or don’t find enough relief to catch up on their debts. If you have already tried to work out payment arrangements yourself and are still struggling to pay your debts each month — or maybe are accumulating even more debt in the process — then bankruptcy may be right for you.

North Carolina Bankruptcy Lawyer

A North Carolina Board Certified Specialist in Consumer and Business Bankruptcy Law at the Law Offices of James Scott Farrin is ready to help. Call 1-866-900-7078 for a free evaluation of your case.

Find out how you may be able to get the debt relief you need and get back on the road to financial recovery!

*Certain debts may be considered non-dischargeable if the creditor takes action in your case. Those debts include debts obtained by fraud, embezzlement, and willful and malicious conduct. These situations are very rare and are dependant upon your specific facts and circumstances. Your bankruptcy attorney will discuss whether this may apply in your case with you at your free consultation.

5 of the Most Common Reasons for Accidents on the Road

Person with their hand on a steering wheel.Traffic accidents happen every day. Some of them are minor, and some of them result in serious injuries that can have long-lasting, devastating consequences. The reasons for these accidents vary, but a large percentage of them are preventable if drivers are better informed and make better choices on the road.

When we look at the causes for traffic accidents, some patterns start to emerge. A handful of factors continue to be at the root of many serious accidents. Let’s take a look at some of the most common reasons for accidents on the road:

Distracted Driving

Talking on a cell phone. Texting. Putting on makeup. Brushing hair. Eating. Changing the channel on the radio. Talking to other people in the car. All of these distractions account for a large percentage of accidents on the road each year. “Rubber necking” at other accidents and reading while driving also account for a significant percentage of distracted driving accidents.

Drivers must eliminate distractions whenever possible in the car. Leave personal tasks such as grooming or eating until you get to your destination. Use a hands-free phone if you absolutely must make a call while you are driving. Never text while driving. Always keep your eyes on the road when you are behind the wheel.

If a task can’t wait, pull to the side of the road or make a stop.

tired driver yawning while drivingDriver Fatigue

Most of us wish there were more hours in the day, and we push ourselves to fill the time we do have by getting as much done as possible. However, when we start burning the midnight oil to try to get more accomplished, we short ourselves on sleep and put ourselves and others in danger when we get behind the wheel.

Late-night and third-shift workers may also drive home exhausted, leaving them vulnerable to making mistakes on the road – possibly even falling asleep behind the wheel. Fatigue can also be a problem for drivers on long-distance trips.

Make sure you are always well-rested before you drive, and pull over to rest or take a break if you start to feel drowsy.

Aggressive Driving

Some drivers get a false sense of invincibility on the road and drive more aggressively than is safe. Speeding, following too close, improper lane changes, and quick turns are just a few of the unsafe practices that can fall under the classification of aggressive driving.

Always follow traffic safety rules when you are behind the wheel. Don’t let frustration with other drivers or impatience to reach your destination affect the choices you make. Acting on impulse and engaging in aggressive driving could result in a serious accident that could leave you or others with serious injuries (or worse).

Weather

Sometimes, conditions on the road are beyond your control. Heavy rain, hail, or snow can make driving conditions less safe by reducing your visibility, making the road slick, or causing unexpected debris on the roadway.

To keep yourself and other drivers safe on the road during inclement weather, practice extra caution when you are behind the wheel. Reduce your speed as necessary, increase your following distance, or pull off the road if needed. Also be sure that your vehicle is always in top condition, with working wipers, quality tires, and sound brakes.

Driving Under the Influence

The dangers of driving under the influence of alcohol or drugs have been well-documented, but it continues to be a cause of a significant number of accidents each year. Never drive under the influence of drugs or alcohol. If you are out and have been drinking, call a cab or ask a friend or family member to drive you home.

With more education about these common causes of traffic accidents, drivers can learn to make better choices that greatly reduce their risk of getting into serious accidents that can lead to serious injury to themselves or others on the road.

North Carolina Car Accident Lawyers

If you have been injured in an accident, you may be entitled to compensation for your injuries. Call the Law Offices of James Scott Farrin at 1-866-900-7078 for a free evaluation of your case and to find out if one of our North Carolina car accident lawyers may be able to help you.

Paper Reports that Home Loans are Available to Many In as Little as a Year after Bankruptcy Filing

Many people who file bankruptcy fear that it will be years before they can buy a home (perhaps for the first time) because the bankruptcy will be on their credit report for 7 to 10 years. However, the New York Times reported last week that this fear is unfounded for many, with some mortgages becoming available to some consumers in as little as a year after bankruptcy has been discharged.

According to the paper, those who file for Chapter 13 bankruptcy protection qualify for a mortgage guaranteed by the Federal Housing Administration (FHA) one year after discharge, and those that file for Chapter 7 qualify in two years.

Of course, consumers will have to work on managing their credit following their bankruptcy discharge to improve their score. This can be done by paying bills on time and using credit responsibly.

handshake is done after home loan is securedFinancial advisors say that using one or two credit cards with a small balance and paying them off regularly is a great way to rebuild your score after a bankruptcy. If you can’t qualify for an unsecured card, then you may be able to get a secured card (one that is backed by a cash deposit) from your bank.

Though a bankruptcy does remain on your credit report for up to 10 years, it is not a financial death sentence. As this report shows, consumers can get approved for new credit relatively quickly following a bankruptcy discharge, and responsible financial management can quickly bring your score back up.

In most cases, filing for bankruptcy is a powerful tool in helping consumers who have become overwhelmed by debt to take charge of their finances and get back on the road to recovery. For many consumers, if they do not file for bankruptcy, they will struggle with overwhelming debts for years, leaving them unable to move forward with purchases like a car or new home. For those consumers, bankruptcy makes financial progress possible.

North Carolina Bankruptcy Lawyers

If you are in over your head in debt, a North Carolina bankruptcy lawyer at the Law Offices of James Scott Farrin may be able to help you. Call our offices at 1-866-900-7078 for a free consultation and to find out how bankruptcy may be able to help you!

10 Things NOT to Do if You are Going to File for Bankruptcy

There are many times we look back and think, “I wish I had not done that!” Lawyers may also think “I wish they [my client] had not done that,” too.

You can’t change the past, but wouldn’t it be nice to know what you should try and avoid ahead of time when possible? With that in mind, I have come up with this list of 10  things NOT to do if you are going to file for bankruptcy.

In an effort to keep this list simple and clear, I have kept out all of the qualifiers we lawyers like to include. I could have taken up pages and pages with this list if I wanted to include every possible exception or defense. I always suggest talking about your specific situation with a bankruptcy lawyer so that you can best determine what to expect in filing a bankruptcy case. But this is a good general list of guidelines for things to avoid doing if you are thinking about filing a bankruptcy:

  1. Don’t Pay Back Family Members
    Relatives are “insiders” under the Bankruptcy Code. If you pay back money to an “insider” during the 12-month period before you file a bankruptcy petition, it can be considered a “preference” and it can be undone by the trustee. In other words: The court may go after your relative to get the money back.

    The trustee can ask for the money back, but if this does not work, the trustee can sue your family member in federal court for return of the funds.

    Avoid this situation and just list your mom, dad, or other relative as a creditor (because they are a creditor), and you can tell them, if you want, that you’ll do your best to pay them back after your case is filed. You may actually be doing them a favor!!

  2. Don’t Take Out a Large Cash Advance
    If you take out a cash advance of more than $875* within 70 days of filing a bankruptcy case, a creditor may file a lawsuit in bankruptcy court to declare these funds as non-dischargeable. This means you would still owe this debt after your bankruptcy case is over. Cash advances include both credit card cash advances and pay day loans.

    If you are thinking about filing for bankruptcy, don’t borrow any money you don’t have to – or any money that you can’t afford to pay back.

  3. Don’t Buy Luxury Goods on Credit
    If you make a “luxury” purchase of $600 or more* within 90 days of filing a bankruptcy case, this is also considered to be non-dischargeable and you may find yourself still owing the creditor for these debts after your case is done.

    Luxury goods can include items such as clothes, electronics, or other personal goods that are not “reasonably necessary” for day-to-day support and maintenance.

  4. Don’t Incur New Debt
    Don’t run up a lot of debts or go out taking out new debt that you have no intention of paying. If you do, you may find yourself the subject of a legal action.

    At a minimum, the court could determine that this debt must be repaid, so you would still owe the money when your case was discharged. At most, you could face fees and other penalties.

  5. Don’t Pay off Some of Your Credit Cards and Expect to Keep Them
    While it’s true that you do not need to identify a credit card company as a creditor if your balance due on the date your bankruptcy petition is filed is $0, this does not mean that you will get to keep that credit card.

    You have to identify any payments over $600** to a single creditor during the 90-day period before you file your bankruptcy case. These payments are “preference” payments, and just like with a family member, the trustee can sue the creditor to return the funds to be redistributed amongst your other creditors.

    Also, in my experience, credit card companies will often cancel your card as soon as it discovers you are in a bankruptcy. (They will know because the bankruptcy is reflected on your credit report.) Therefore, you may pay off the credit card before you file in an effort to keep it, but the company may cancel your card anyway. You’re out the cash and the card.

  6. Don’t Sell or Give Away Valuable Property
    Hand on a computer mouseSelling or giving away property is considered to be a transfer of that property. You are required to identify all transfers that took place within a 2-year period of filing your bankruptcy case. Transfers can include selling a couch on Craig’s list or eBay, holding a yard sale, gifting money to a family member, or selling your car.

    Many transfers are allowable, such as selling your car for market value or holding a yard sale. However, if you gave a relative money or you sold your car to your nephew for $500 when it is actually worth $2,000, this would be considered a “fraudulent conveyance” under the Bankruptcy Code.

    If you sold or gave away property for less than its value before filing a bankruptcy case, the trustee can go after these just like “preference” payments to family members.

  7. Don’t Hide Things from Your Attorney
    Your attorney can only give you advice based on information you provide.

    Failing to identify property you own, intentionally undervaluing your property, omitting a “preference” payment or “transfer” that you think may create a problem, or otherwise providing false information can have serious consequences. Not only can your discharge be denied (meaning that you will still owe all of your debts),
    but your case can also be turned over to the U.S. Attorneys’ Office for prosecution of bankruptcy fraud. If found guilty, you could face time in federal prison and/or a hefty fine.

    Give your attorney all the information so you can discuss ways to solve potential problems before they become even bigger problems.

  8. Don’t Wipe Out Your Retirement Account
    Most retirement accounts are protected from your creditors and the bankruptcy trustee. If you do not have enough in your retirement to fully resolve all of your debt issues – and handle the tax consequences of the withdrawn funds – it is generally not advisable to do so.

    Pulling money out of your protected retirement accounts so that you can maintain the minimum payments on your credit card bills or medical bills is often just delaying an inevitable financial crisis. You may find yourself still owing a lot of debt – and in need of filing a bankruptcy anyway – and then you also have no retirement left.

    This one particularly breaks my heart when it is an elderly client that does not have as much time to rebuild retirement funds.

  9. Don’t Wipe Out Your Savings Account
    Savings accounts, unlike retirement accounts, are often not protected or not fully protected from your creditors and the bankruptcy trustee. It depends on what other assets you have and what exemptions are available to you.

    However, you don’t want to use your limited savings funds to pay down credit card debts and medical bills when you also have car payments or mortgage payments. Unsecured debts may be able to be discharged in a bankruptcy, while house and car payments may not.

    You also may want to have some of these funds to pay for filing your bankruptcy case. Do you want to spend $5,000 or more barely putting a dent in your overall debt or spend less then $2,000 to wipe out all or most of your debt in a Chapter 7 bankruptcy case?

  10. Don’t Commingle Protected Funds
    Some forms of income are fully protected, such as personal injury funds, workers’ compensation benefits, and Social Security funds (disability or income). A portion of your income is generally protected, as well.

    You don’t want to mix these funds together because it can become hard to identify what portion of the money in your bank account is from a personal injury award 3 months ago and what portion is from your earnings from the past 60 days. Be sure to maintain separate accounts so all sources of income can be clearly identified.

If you ever have questions about how bankruptcy laws may apply to your case, simply contact a bankruptcy lawyer. Call me at 1-866-900-7078 for a free consultation of your case to find out how bankruptcy may be able to help you!

* These amounts are adjusted every 3 years pursuant to Section 104 of the Bankruptcy Code.

** The amount listed is for individuals filing a bankruptcy with primarily consumer debts. The “preference” amount for a bankruptcy filer whose debts are primarily non-consumer debts is currently $5,850 (but this too is adjusted every 3 years pursuant to Section 104 of the Bankruptcy Code).

Don’t Wait Until It’s Too Late to Call a Bankruptcy Lawyer!

Woman calling a bankruptcy lawyerA common scenario I run into as a bankruptcy lawyer is that people will contact me because their home is in foreclosure and they want to find a way to save it, possibly by filing for bankruptcy. However, many of these people have let their mortgage fall so far behind that not even bankruptcy can help them. They waited too long to call a lawyer!

Unfortunately, the answer to my question “How many months are you behind on your mortgage?” is far too often “Years.” Many people who call me have tried to work with their mortgage companies for months or years to get their loan modified, and the bank refuses to accept payment while negotiations are underway. Meanwhile, the sale date on foreclosure proceedings is delayed and they continue to rack up more late payments.

When the bank finally puts a stop to negotiations and refuses to accept any modifications to the loan, all of the mortgage payments that were delayed suddenly become due and the foreclosure proceedings that the homeowner may have thought would be delayed again move forward. Some of these people have become 2 years or more behind on their mortgage payments and have only a few weeks to come up with the past-due amount.

If these homeowners are now 2 years behind with a mortgage payment of $850 a month, that’s $20,400 due immediately to save the house from being sold at foreclosure.

Not many of us have $20,400 sitting around – especially if we were already struggling to pay our mortgage.

Some of the people I talk to may have saved some money while they were negotiating with the mortgage company and weren’t required to pay their mortgage payment. However, the amount they may have saved is usually far less than what they owe. This could be because:

  • A job loss or reduction in hours may have cut their income (causing them to fall behind on their mortgage in the first place).
  • The money that would have been spent on the mortgage was used on other living expenses for which there weren’t funds.
  • Unexpected expenses or emergencies came up that required use of those savings.
  • The savings were used to pay down credit card bills or other debts, with the expectation that the mortgage would be modified.

 

What Bankruptcy Can Do For You

It is often when people find themselves on the eve of a foreclosure sale they thought would be postponed again but was not, and modification is off the table with as much as 2 years in past-due payments owed, that they call a bankruptcy attorney to try and save their home.

There are several types of bankruptcy, but when it comes to filing a bankruptcy with the purpose of trying to save your home from a foreclosure, Chapter 13 is generally the type of case filed. A Chapter 13 bankruptcy is a reorganization of debts that allows you to do things like catch up on your mortgage payments over the course of your bankruptcy payment plan.

Here’s the catch: A Chapter 13 bankruptcy can only go up to 60 months (5 years). During this time, you must pay your current mortgage payment IN ADDITION TO the past-due amount that you owe. Mortgage, plus.

It comes down to the math. The further you are behind on your mortgage when you file a Chapter 13 bankruptcy case, the bigger your monthly payment must be to bring it current within the 5-year plan. You will also have some or all of your bankruptcy attorneys’ fees and a trustee commission to pay in your plan, in addition to any late fees or back taxes.

It’s not all bad news! A Chapter 13 bankruptcy offers many benefits if you are looking to reorganize your debts. You can reduce the interest you pay on a car loan and stretch out the payments. In some cases, you can reduce the balance you owe on your car loan, and credit card debts and medical bills can often be completely wiped out with little to no payments required. There are even some cases where you can “strip” off a second or third mortgage and treat that as a general unsecured claim (like a credit card).

Call a Bankruptcy Attorney before It’s Too Late!

Don’t wait until the mortgage company tells you that it won’t modify your mortgage and that you now owe more than you could afford to pay!

Don’t get me wrong. Modification, if it works, can be a great savior for home owners, particularly when income has declined and it is not going to go back up. However, there are no guarantees that the bank will accept your proposal, and if you wait too long before looking at other options, you may be out of options.

If bankruptcy is the right step for you, the sooner you file, the sooner you can take control of your debt and begin to pay it back (if you file Chapter 13) or the sooner you can free up some income by discharging your unsecured debts (most Chapter 13 cases and Chapter 7 cases).

The sooner you file, the less money you will pay in the long run in fees and penalties, as well, saving you a lot of money.

Don’t think of bankruptcy as a measure of last resort! If you are behind on your mortgage or have become over you head in debt, bankruptcy may be a powerful tool to help you better manage your budget and take control of your finances.

Call me today at 1-866-900-7078 for a free consultation and to talk about your options. Don’t wait until it’s too late!

Home Foreclosures Surge in January

Foreclosure sales spiked in January, indicating that many across the country are still struggling in the slow economy and may benefit from debt relief.

Aerial view of homesThe LPS Mortgage Monitor reported that foreclosure sales rose to 91,000 in January, up 29 percent from the previous month. The number of foreclosure starts also increased by 28 percent, and starts for repeat foreclosures hit an all-time high of 47 percent.

The agency suggested that the increase could suggest that a backlog of proceedings have finally started to move forward.

Foreclosure sales had dropped off in the fall 2010 after problems with banks’ documentation practices surfaced. Sales had remained flat through 2011.

The biggest increase in foreclosure sales occurred in the 24 “judicial states” – states where banks must get a judge’s permission before foreclosing on a home. Foreclosure sales in these states were up 51 percent over the previous month.

North Carolina is a non-judicial state.

Bankruptcy for Debt Relief

Now that banks are initiating foreclosure proceedings more quickly, many families may be forced to make some hard decisions. Perhaps you have been struggling with your mortgage for months and have fallen behind significantly.

If you are facing the threat of foreclosure – or if the bank has already initiated foreclosure proceedings against you – bankruptcy may be able to offer you the debt relief you need. Depending on how far behind you are on your mortgage, and how much other debt you have accumulated, bankruptcy may allow you to catch up on your payments through a structured debt-repayment plan, or it may allow you to eliminate unsecured debts, freeing up the income to pay back your mortgage.

Now is the time to act. Call the Law Offices of James Scott Farrin at 1-866-900-7078 for a free case evaluation to find out how bankruptcy may be able to help you. Don’t wait until it’s too late!

A sad woman in a dimly lit room.Tax time may give some the chance they need to finally to take a little trip. Others may use that extra cash to pad their savings for a rainy day.

For many who are struggling financially, tax time gives them the opportunity to finally declare bankruptcy, new research shows.

Economists at Columbia University, the University of Chicago, and Washington University in St. Louis found that the number of bankruptcy filings increases after people receive their tax refunds – when they finally have the money to pay the increased filing costs brought about by changes to the bankruptcy laws in 2005.

The researchers argue that many who want to file for bankruptcy cannot afford the average of $1,477 in fees that it now costs to file – an increase of approximately 60 percent since the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act was passed. The law also requires people to pay for their own mandatory credit counseling before they can file.

Limited Access

According to the American Bankruptcy Institute, more than 2 million people filed for bankruptcy in 2005. After the new law was passed, that number dropped 71 percent to 598,000.

Researchers for this new study said that bankruptcy filings rose 2 percent after tax rebates were received in 2001, but they increased 7 percent after tax rebates in 2008 – an increase of more than 300 percent.

The evidence suggests that the changes in the law have prevented many with lower incomes from filing for bankruptcy, rather than screening out abuse as intended, the researchers said.

“According to our research, bankruptcy fees prevent the most financially distressed households from being able to file, and tens of thousands of households will have trouble saving up for bankruptcy in 2012,” said Jialan Wang, a finance professor at Washington University in St. Louis and one of the study’s authors.

Bankruptcy provides a valuable form of debt relief for many families, and an experienced bankruptcy lawyer can help you determine how best to file bankruptcy if it is the right solution for you. Call the Law Offices of James Scott Farrin at 1-866-900-7078 to find out how we may be able to help you!