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Predictions abound that hundreds of thousands of people will be too broke to file Chapter 7 bankruptcy petitions in 2012. The National Bureau of Economic Research completed a recent study indicating that the average cost to file for Chapter 7 protection is now above $1,500. Consequently, between 200,000 and one million people are projected to lack the ability to afford bankruptcy protection. It is likely that some of those people will reside in the Miami area.

Researchers analyzed recorded increases in bankruptcy filings immediately after tax refund seasons in prior years. The group of professors, from three U.S. universities, conducted the research. They estimate that around 200,000 people will need to use their tax refunds in 2012 to have enough money to file for Chapter 7 bankruptcy protection.

While this is certainly not an ideal situation for those consumers, the escalating cost of filing for bankruptcy is pricing many more citizens out of the ability to receive protection. Unfortunately, after the massive layoffs and downsizing of the recent devastating recession, for many consumers, Chapter 7 bankruptcy is the only potential source of personal financial reorganization.

Losing this option may wreak further devastation on individuals and families already in severe financial distress. The Bankruptcy Abuse Prevention and Consumer Protection Act (2005) helped make filing petitions more expensive. The fee for merely filing necessary paperwork in federal court costs around $300. Additional fees for reform requirements, such as pre-bankruptcy credit counseling and pre-discharge debtor education courses, amount to an additional $85 on average.

The research study revealed that many consumers, unable to afford the rising filing and legal fees, no longer have access to their only financial reorganization option. The legal community also has few pricing options, since bankruptcy reform procedures were installed. Since the U.S. Congress passed the reform act, the entire process is more difficult and the paperwork necessities have mushroomed along with the more complex procedures required by the legislation.

Source: Daily Finance, “Too Broke to Go Bankrupt: Price of Chapter 7 Is More Than $1,500,” Blake Ellis, May 7, 2012