Americans delay bankruptcy until they receive tax refunds

Chicago, IL- When some people get their tax refunds they often contemplate whether to spend or save the money, but a new survey shows that some are waiting for that check so they can go bankrupt.

Economists from the University Of Chicago Booth School Of Business conducted a study where they found that bankruptcy filings increase after Americans receive their income tax refunds. And the reason for the delay is because these individuals are waiting for the money to pay bankruptcy attorney fees, which averages about $1,477.

The researchers found that bankruptcies increased 7 percent in 2008 after people received their tax refunds. This represents a three-fold increase over 2001 where after-tax rebate bankruptcies only increased by 2 percent.

The authors of the study concluded that a 2005 change on bankruptcy laws increased the costs of declaring bankruptcy. This had a two-fold affect, the law was intended to curtail frivolous bankruptcy cases, which was successful, but it also prevented lower-income households from seeking debt protection, who delayed hiring a bankruptcy lawyer for months while they saved money for legal fees.

The legislation did cause a drop in bankruptcy filings until the economic crisis in 2008. After the law passed, bankruptcies dropped 71 percent in 2006 with a total of 598,000 filings, according to the American Bankruptcy Institute. In 2008, bankruptcies increased to pre-2005 levels with over 1 million bankruptcy filings in 2008.

Hiring a bankruptcy attorney to help reduce debt can be beneficial to the economy since it allows renewed spending as long as consumers are not encouraged to take out additional credit.