Personal bankruptcy filings soar during tax season

Many Florida residents use their income tax refunds to pay bills or fund a vacation, but others use the money to cover the costs of filing Chapter 7 or Chapter 13 personal bankruptcies. Taking advantage of the fresh start offered by the nation’s bankruptcy laws involves paying filing and legal fees, and many Americans struggling with overwhelming debt are unable to meet these costs. Income tax refunds can solve this problem, and personal bankruptcy filings generally soar during tax season as a result.

The financial information website NerdWallet has looked for debt relief trends by studying bankruptcy court records, and it noticed that Chapter 7 filings surged every March and April. Between 2013 and 2016, Chapter 7 bankruptcy petitions increased by between 26 percent and 34 percent in March and by between 15 percent and 25 percent in April. NerdWallet researchers concluded that income tax refunds were the most likely explanation for this yearly trend.

Changes to the bankruptcy laws introduced in 2005 added complexity to the filing process, and the legal costs associated with filing a Chapter 7 or Chapter 13 bankruptcy have increased as a result, according to the American Bankruptcy Institute. A 2015 study by the U.S. Federal Reserve revealed that 46 percent of Americans would struggle to come up with $400 in an emergency, and the refunds sent out during income tax season, which averaged $2,860 in 2016, have become the resource of choice for many seeking debt relief.

Attorneys with experience in this area could explain the fees involved in filing for personal bankruptcy and compare them with costs of other debt relief options. Attorneys could also debunk many of the myths and misconceptions surrounding personal bankruptcy and point out that taking this path puts an immediate stop to harassment from creditors and collection agencies.