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.
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!