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How tax refunds increase the likelihood of bankruptcy

According to the IRS, the average tax refund for Michigan residents and other Americans in 2016 was $2,860. While some will use that money to take a vacation or make other large purchases, others will use the money to file for bankruptcy. According to the Administrative Office of the U.S. Courts, bankruptcy filings in March between 2013 and 2016 were 26 to 34 percent higher than the monthly average for the year.

In April of those years, filings were 15 to 25 percent higher than the monthly average. For many people, a tax refund may represent the only means of getting enough money together at once to pay bankruptcy fees. To file for Chapter 7 bankruptcy, an individual will pay as much as $335 for an attorney as well as up to $1,200 in filing fees. It is expected that the cost to file will go up in the next few years.

From 2003 to 2009, the cost of a no-asset Chapter 7 case increased 48 percent. This is partially because of changes to bankruptcy laws that were passed in 2005. These changes have made the process of filing for bankruptcy more complex, which means attorneys have to pass on the costs to their clients. Those who file for Chapter 7 bankruptcy mostly do so to discharge debt balances, with student loans and taxes among the notable exceptions.

People who are facing financial challenges may wish to consult an attorney about filing for bankruptcy. Doing so may provide an automatic stay against creditor collection activities. In a Chapter 7 case, debts may be discharged quickly with no further payments owed to creditors. This may allow an individual to get a fresh financial start, and a debtor may be able to keep some or all of his or her property.

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