Tax Rebates/Refunds Lead to Increased Filings

There were more bankruptcy filings in March than any other month in 2009, 2010, and 2011 and 2012 presumably will be the same.  Why you ask?  There is a great analysis here.    Tax refunds.  The article is actually about tax rebates but I assume it would apply to tax refunds as well.  The costs of filing we know have soared since BAPCPA in 2005.  The authors say “legal and administrative costs inhibit a significant number of households from filing for bankruptcy.”  The tax refunds gives the filer the funds to pay the attorney or other paid preparer.

The article concludes, “Mian and Sufi (2011) report that the household debt to income ratio more than doubled from 0.9 in 1980 to 2.0 in 2009.  Against the backdrop of this dramatic rise in household debt, raising the costs of filing is an ineffective strategy for curtailing consumer bankruptcy.  The recession has caught many households in a rising tide of unemployment and foreclosure, and high bankruptcy fees prevent them from obtaining much-needed relief.

There are many reasons to be troubled by today’s high bankruptcy rates—more than 1.3 percent of all U.S. households filed in 2011.  But we can only fix America’s bankruptcy problem by eliminating excessive consumer credit, not by adding insult to injury for households that are already broke.”

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