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Tax day has come and gone and some people in the Miami area have received a refund. While some of these people are thinking about what to do with the influx of funds, others already know how they will use the money. Some will make a purchase while others will put the money away for a rainy day. For those facing financial difficulties, an income tax refund may provide the funds needed to seek a fresh start.

Throughout the United States, more than 200,000 taxpayers will use the money they receive from their income tax returns to file for bankruptcy, according to a study recently conducted by the National Bureau of Economic Research. The expected increase in bankruptcy filings in the early part of 2012 is not an anomaly.

Since 2005, when the bankruptcy laws changed, coming up with the money necessary to file has become more difficult for those already have a problem making ends meet. Prior to 2005 the average costs associated with filing for bankruptcy was $921. By 2007, that number had risen to $1,477. Looking at the numbers, it makes sense then that the receipt of a lump sum would provide an opportunity to file for bankruptcy.

Though the changes to the bankruptcy law were designed to prevent abuse of the system, not all agree that they are having that effect. The additional work that must now be done in the course of a bankruptcy case has made more work for attorneys who must then pass the cost onto their clients. To some, the effect of the law has just been to make it more difficult for those who facing financial difficulty to find the relief provided for under law. What do you think? Have the changes to the law accomplished what they set out to do?

Source: USA Today, “Tax refunds being used to pay for bankruptcy filings,” Christine Dugas, April 13, 2012