Over 200,000 American families report that they will use their tax refunds this year to pay for bankruptcy filing and legal fees, according to a study from the National Bureau of Economic Research.

Bankruptcy lawyers know that when people receive their tax refunds from the IRS, there is often an increase in personal bankruptcy filings.

This has become even more prevalent since the cost of bankruptcy has increased when U.S. bankruptcy laws changed in 2005, forcing more families to delay filing until they can afford to pay the fees, the NBER study says. The average cost of legal and administrative fees for filing personal bankruptcy has increased from $921 in 2005, before the reform in the law, to $1,477 in 2007, following the change in the law. The largest segment of the overall cost is attorney fees since lawyers now must verify substantially more information in a case than they did before 2005, according to University of Illinois law professor, Robert Lawless.  

The law was changed to prevent bankruptcy abuse; it was ascertained that too many people who could afford to pay their debts were taking advantage of the system. However, according to Jialan Wang, an assistant professor of finance at Washington University in St. Louis, Missouri, as quoted in USA Today, “’… if you want to curtail abuse, raising the cost is not a good way to do it. The people who really need bankruptcy are the ones who will be unable to pay for the fees.’”

Last year’s average tax refund was $2,913, according to figures from the NBER, enough for many Americans to file for needed bankruptcy protection.

Yes, it is a fact that when you go through a bankruptcy, foreclosure or short sale on your home, your credit score will be impacted. It is also a fact that, in time, you will be able to reestablish your credit, acquire a credit/debit card, finance the purchase of a car and qualify for a mortgage. It is also a fact that if you owe too much in debt, if you are paying your debts late, or if you are borrowing from one card to pay another, your score can also be negatively affected. When you call Jacoby Meyers Bankruptcy Law, our dedicated bankruptcy attorneys will take the time to explain how your Chapter 7 or Chapter 13 bankruptcy will affect your personal credit score. Call 800-260-1402 Monday-Saturday to speak with an experienced and knowledgeable bankruptcy attorney and log onto our interactive website at www.jacobymeyersbankruptcy.com for personal bankruptcy information 24/7.