Using Tax Refunds for Consumer Bankruptcy

As a recent article in USA Today points out, if you are not struggling with debt, the possibility of a tax refund in April can give many Illinois consumers an opportunity to make a large purchase or to take a trip. However, for many Chicago residents, any tax refund received will be used to help pay off some of the debt they owe. For some of these debtors, though, the amount of a tax refund is not enough to “wipe out crushing debt” that is plaguing them. Instead, as the article suggests, tax returns can give those debtors just enough money to afford to file for Chapter 7 bankruptcy. The timing of certain consumer bankruptcy spikes seems to coincide with tax refunds.
What else should you learn about the possible link between higher rates of Chapter 7 bankruptcy and tax season?
Do Tax Refunds Really Coincide with Higher Rates of Consumer Bankruptcy?
Tax season does not necessarily coincide with higher rates of all types of consumer bankruptcy. Chapter 13 bankruptcy looks a lot different from Chapter 7 bankruptcy in practice, and debtors typically are not trying to find the money to pay for Chapter 13 bankruptcy in the same way that they may be struggling to find the cash to finance a liquidation bankruptcy. Just to be clear, Chapter 13 bankruptcy is a reorganization bankruptcy, while Chapter 7 is a liquidation bankruptcy.
Yet tax season, according to the article, does often mean higher rates of Chapter 7 bankruptcy filings. Based on data collected in a NerdWallet review of statistics from the Administrative Office of the U.S. Courts, over the last several years, Chapter 7 bankruptcy filings in March have been anywhere from 26% to 34% higher, on average, than filings during other months of the year. April filings, too, show a spike. Between 2013 and 2016, Chapter 7 bankruptcy filings in April range from 15% to 25% higher, on average, than filings during other months.
Chapter 7 Bankruptcy is Expensive, and Many People Cannot Afford it
Why would Chapter 7 bankruptcy filings increase so drastically during the two major months in which consumers are getting tax refund checks? In short, Chapter 7 bankruptcy costs a lot of money for many Chicago residents and struggling debtors in other parts of the country. On average, according to the article, a person who files for Chapter 7 bankruptcy will end up paying around $1,500 total—including filing fees and attorneys’ fees.
You might be thinking that $1,500 does not seem like such a high cost. However, according to a Federal Reserve report from 2015, as many as “46% of American adults wouldn’t be able to cover an emergency of $400, which would barely pay the filing fees of Chapter 7 bankruptcy.” To put that another way, nearly half of all American adults do not have $400 in savings with which they could readily part. As such, nearly half of all American adults simply do not have the funds on hand to pay the necessary costs of filing for Chapter 7 bankruptcy.
Contact an Oak Park Bankruptcy Lawyer
If your tax refund check this year is not sufficient to make a dent in your debts, it may be time to consider filing for bankruptcy. If you have questions about whether you are eligible for Chapter 7 bankruptcy and how it can help with your financial situation, an experienced Oak Park bankruptcy attorney can speak with you today. Contact the Emerson Law Firm to discuss your situation and to learn more about the benefits of consumer bankruptcy.
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