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Why people use tax refunds to file for bankruptcy

For some Kentucky residents, a tax refund is an opportunity to pay off debt. However, many people use their refunds to pay for the process of filing for bankruptcy. According to statistics from the Administrative Office of the U.S. Courts, bankruptcy filings increase by up to 34 percent in March, a month that's popular for tax filing. Data also showed that there was a 15 to 25 percent increase in the month of April.

Filing for Chapter 7 bankruptcy can cost an average person up to $1,500 or more. On average, filing fees and other costs total $355 while attorney fees can total $1,200 or more on average. Costs have increased for a basic no-asset Chapter 7 filing by 48 percent from 2003 to 2009. According to the American Bankruptcy Institute Law Review, the increases were partially because of changes made to the bankruptcy code in 2005.

The average tax refund in 2016 was $2,680, according to the IRS. Therefore, most people will still be able to afford to file for bankruptcy. Tax refunds are commonly used to pay bankruptcy fees because they may represent the only way an individual will get more than a few hundred dollars at one time. According to a 2015 report, 46 percent of American adults couldn't handle a $400 emergency expense.

Those who may be thinking about filing for bankruptcy may wish to talk to an attorney. Legal counsel may be able to explain how to qualify for Chapter 7 bankruptcy as well as how the process of filing works. An attorney may also explain the benefits that come with bankruptcy, such as the potential for quick discharge of unsecured debts.

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