Tax Refunds Being Used to Pay for Bankruptcy Filings

April 12, 2012
USA Today 

According to a recent study by the National Bureau of Economic Research, more than 200,000 cash-strapped households will use their tax refunds this year to fund bankruptcy filing and the legal fees associated with it. While it is normal for personal bankruptcy filings to spike around this time of year, the trend has been more pronounced since the cost of filing surged under new laws in 2005. The study found that many more families have had to postpone filing until they can afford to pay the high fees. The average cost of legal and administrative fees related to bankruptcy filings soared from $921 in 2005 to $1,477 in 2007, according to the U.S. Government Accountability Office. Legislators changed the law to reduce bankruptcy abuse by people who could afford to pay off their debts, but did not want to. "But if you want to curtail abuse, raising the cost is not a good way to do it," said Jialan Wang, assistant professor of finance at Washington University in St. Louis and one of the study's authors. "The people who really need bankruptcy are the ones who will be unable to pay for the fees."
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