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Americans use tax refunds to file bankruptcy

Tax season is stressful, but it can be a relief knowing that you are collecting a refund. For some, a refund can help pay off bills, get ahead of credit card debt, or even go towards that family vacation you have been saving for.

Refunds or rebates have also helped Americans further debt relief, by going towards bankruptcy filing. Filing for bankruptcy has been known to reduce and eliminate overall debt, stop legal action, stop harassment, and put an end to foreclosure proceedings.

According to reports, more than 200,000 households will used their tax refunds to pay for filing and other fees associated with bankruptcy. Historically, there is a spike in filings at this time of year, in part because the refund can assist with fees, but also because filers are forced to take an honest evaluation and assessment of their income, assets and debts.

Since 2005, the cost of filing bankruptcy increased and for many families, this means delaying filing until they have enough up-front cash to pay for the legal proceedings. In addition to filing fees, other costs for bankruptcy may involve verification of information and processing.

Many critics believe that the rising cost of bankruptcy only hurts consumers. For people that are in need of bankruptcy, they should not be forced into saving to file. Those who cannot afford filing will wait until they can pay the fees, and for a significant number of Americans, this one-time cash infusion comes in the form of a tax refund.

USA Today, "Tax refunds being used to pay for bankruptcy filings," Christine Dugas, April 13, 2012.

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