Tax season is fast approaching. For many bankruptcy attorneys, that could mean that their workload will soon increase. According to the Los Angeles Times, bankruptcies rise after tax refunds are issued.
Strange, right? Why go broke when you just received a lump of cash? We briefly alluded to this in a different post on how bankruptcy numbers rise in the month of February. Let’s go into this in greater detail, especially for those of you who may be considering bankruptcy in the not-so-distant future.
According to the L.A. Times, research conducted by several universities concluded that in 2008, bankruptcy numbers increased 7 percent after the IRS sent out tax refunds. Why did this happen? The study showed that the tax refund helped pay for bankruptcy fees, as many could not afford the process without the extra cash.
Indeed, with increased filing fees and mandatory credit counseling, bankruptcy isn’t a cheap process. And according to the study profiled in the L.A. Times, the increase in costs, which was implemented in 2005, deterred some people from filing for bankruptcy.
A few thousand dollars to set the bankruptcy wheels in motion isn’t a bad bet, though. Bankruptcy can have release you from most of your debt. While there are always debts that are non-dischargeable in bankruptcy, (such as tax debts and often, student loans), the relief that bankruptcy provides can give debtors a chance to start over.
If bankruptcy is on your horizon, then perhaps your tax refund might be the catalyst you need to kick-start the process. If you are considering filing for bankruptcy, you might use your tax refund and any extra cash on hand to pay down some of those non-dischargeable debts.
Talk to a bankruptcy lawyer or have a look at our related resources below to learn about bankruptcy.