When many Miami residents receive their 2014 tax refunds, instead of making extravagant purchases or going on vacation, they will use the cash infusion to file for consumer bankruptcy.
A study done a few years ago by the National Bureau of Economic Research estimated that over 200,000 American households intended to use their annual tax refund to pay for attorneys’ fees and costs associated with bankruptcy filings.
Traditionally, legal firms all over the nation see a definite uptick in Chapter 7 filings during the first quarter of the year when most taxpayers receive their refunds. A decade ago, when the changes in bankruptcy laws were implemented, costs of consumer bankruptcies rose. Attorneys were forced to do more verification of the information their clients submitted to them, driving up their legal fees and putting bankruptcy out of the reach of many struggling debtors.
That annual lump sum tax refund is enough for most consumers to hire an attorney and cover their filing fees for the debt relief they are seeking.
The laws were amended to curtail abuse of the bankruptcy process, as there was a perception that debtors who could afford to pay off their arrearages were gaming the system with serial bankruptcy filings.
However, the changes in the laws often made the cost of bankruptcy filings cost prohibitive to the debtors most in need of the financial protection.
If you find yourself in dire financial straits and have run out of repayment options, using your 2014 tax refund to file for consumer bankruptcy protection might be your only viable option to get out from under the mountain of debt.
Source: USA Today, “Tax Refunds Being Used to Pay for Bankruptcy Filings” accessed Mar. 12, 2015