Tax Refunds Being Used to Pay for Bankruptcy Filings
April 14th, 2012Via: USA Today:
Some Americans spend their tax refunds on high-tech gadgets and long-awaited vacations. Others use the cash to file for bankruptcy.
More than 200,000 money-strapped households will use their tax refunds this year to pay for bankruptcy filing and legal fees, says a new study by the National Bureau of Economic Research.
The NBER research confirms what bankruptcy lawyers have long known: At the first part of the year, when Americans receive their tax refunds, there almost always is a spike in personal bankruptcy filings.
But that has been especially true since the cost of bankruptcy soared after U.S. bankruptcy laws changed in 2005. And many more families have been forced to delay filing until they can afford to pay the fees, the NBER study says.
“If people are expecting a big refund, they go as fast as they can to a tax preparer,” says Henry Sommer, a bankruptcy lawyer in Philadelphia. “They need the money so they can afford to file for bankruptcy.”
They forgot to include those who don’t get tax returns.
Due to the pleasures of having children living with ex-wives (hint guys, never get married, and never have children), I haven’t seen a tax return check in years.
I was at the point of declaring bankruptcy a few years ago. I consulted with several bankruptcy attorneys, and researched on my own. With my situation at the time, the only thing the courts would consider would be a court managed consolidation of my debts.
Despite who I talked to, the math didn’t change. The court would order me to pay double my current income.
In my area, I had to come up with cash to pay the bankruptcy attorney. My state doesn’t protect any of my assets as payment to the bankruptcy attorney.
With what I was bringing in from unemployment, and then from a really low pay high stress job, I couldn’t afford the attorney fees and court costs. If I would get a tax return, that could have paid for it.
In the end, I had to walk away from all my debts, ignore the bill collectors, and take a hit on my credit score.
Now, I have some money. Most past debts are paid in full.
I’ve come to the decision that all purchases will be made that way in the future. No interest loans. No risk of foreclosure or repossession. No nasty calls at all hours demanding anything from me. I’m done with them. If I want to borrow money, I’ll go to someone reputable, like a loan shark. At least you know their terms, and if they want repeat business they’ll honor them.
So, even the wonders of the tax return simply aren’t there for quite a few people. All we can do is say “fuck it”, and stop paying anyone.
“In the end, I had to walk away from all my debts, ignore the bill collectors, and take a hit on my credit score.”
To me, this is the best solution. I’m not saying that you shouldn’t pay your bills, but if you get into trouble and have major delinquency you should never, ever pay those bills back, because a lot of the time they do not take it off your credit. Your credit is still listed as bad, even if you eventually paid the bills, because you still had delinquencies. The possibility of regaining a good credit rating is just something creditors dangle in front of you to suck more money out of you. It really is just throwing good money after bad. If you do pay the bills at a discounted rate they notify the IRS who considers the discounted portion as income, and you are taxed on it. If you never pay the bills you won’t be taxed on any of it.
I think bankruptcy is just another of the many scams such as college tuition, medical insurance, identity insurance, etc.. used to suck more money out of people. All bankruptcy does is (maybe stop the phone calls), and who answers the phone these days anyway, that is what voicemail is for. Your credit is still ruined. I could care less about a good credit rating because my house and cars are paid for. Another plus to having a bad credit rating is I don’t have to worry about identity theft.
Never, Ever try to regain a good credit rating – they’ll bleed you dry, while telling you over and over “oh, your almost there, just give us a little more money this time”…..