Some Families Are Putting Their Tax Refunds Toward Bankruptcy

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Photo: Flickr / the Italian voice

More families have been using their tax rebates to file for bankruptcy, reports the Columbia University Mailman School of Public Health. In 2001, bankruptcies increased 2 per cent after receiving rebates but increased 7 per cent in 2008, according to the study written by Tal Gross, an assistant professor of health policy and management at the school.

Overall, Gross found bankruptcy filings fell by more than 50 per cent between the two years, presumably due to the Bankruptcy Abuse Prevention and Consumer Protection Act passed in 2005.

The act increased legal fees for filing from an average of $921 to $1,477.

While some debate the new law was a good way to weed out unnecessary filings, Gross believes it made it more difficult for families in need to dig themselves out of their financial troubles.

“Bankruptcy can be a Catch-22 when a substantial amount of money is needed to get out of a situation defined by having little or no money,” he said. “If it weren’t for these rebate checks, many families would have to postpone filing for bankruptcy for months until they save enough money.”

While bankruptcy has had a bit of a bad rep in the past, it can literally be a lifesaver—especially for people with medical debt.

“It’s often a misconception that filing for bankruptcy will hurt your credit,” Hamid Soleimanian, a bankruptcy lawyer, told Your Money. “Although it’s true that the filing of bankruptcy will stay on one’s credit history for up to 10 years, the credit score can go up as shortly as a year later, and sometimes by up to 100 points.” 

Now see 10 of the most embarrassing celebrity bankruptcies of all time >

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