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Home 9 Chapter 7 Bankruptcy 9 Many people use their tax returns to pay for Chapter 7 relief

Many people use their tax returns to pay for Chapter 7 relief

by | Mar 31, 2017 | Chapter 7 Bankruptcy

March and April are peak months for filing bankruptcy and attorneys know why: The people who come to them are unable to even afford the small legal fees associated with bankruptcy petitions without their tax return money.

It’s no secret that many Americans have very little saved up for emergencies — and those struggling under crushing debt probably have even less than average. Some people rely on their tax returns to alleviate some of their accumulated debt, especially if they went a little overboard during the holidays.

However, for many, the real financial relief comes when they can afford the fees to get the bankruptcy attorney paid and their petition filed.

Many bankruptcy attorneys insist on full payment before they will file the bankruptcy petition. This isn’t out of avarice or because they are unsympathetic — it’s simply a matter of practicality. If their client hasn’t paid them at the time of filing, then the attorney has to list their own fees as part of the client’s unsecured debts — which could then be discharged in the average Chapter 7 case. That would mean the attorney would be doing the work for free, which means that his or her livelihood would be endangered.

Chapter 7 filings jump 26-34 percent during March and 15-25 percent during April over other months. Because bankruptcy laws have become more complicated in the last decade, bankruptcy costs have risen. Filing fees are around $333 and attorney fees average $1,200.

Alternatives to paying the entire fee in one lump sum include working out a payment plan with your attorney — but keep in mind that he or she may not file your actual papers until you finish making payments. Since you are filing bankruptcy anyhow, it may make sense to stop any unnecessary payments to creditors (everything except your rent or mortgage, car note and utility bills) and pay the attorney instead.

For more information on what you can do to survive the period between the time you decide to file bankruptcy and the time you can afford to do it, check with your attorney for advice.

Source: SFGATE, “When a tax refund means bankruptcy,” March 30, 2017

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