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Bankruptcies spike as tax returns come in

Saving money in order to file for bankruptcy probably sounds strange to some people. Saving money implies that one has money, and therefore wouldn't need to file for bankruptcy. However, in recent years, filing fees and related costs for filing a bankruptcy in New Jersey and throughout the country have risen due to legislative changes, and some individuals have deferred filing for protection until they can afford the fees associated with it.

Since the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, many individuals and families have waited until they have enough money to file for bankruptcy. This 2005 law raised the fees involved in bankruptcy filing from an average of $921 to $1,477. The increase in cost was meant to limit bankruptcy to those who are certain it is the right option.

New research by Columbia University's Mailman School of Public Health suggests that many of these families are waiting for tax rebates in order to afford to go bankrupt. According to the research, total bankruptcy filings increased by 2 percent after 2001 tax rebates were issued, and by 7 percent after 2008 tax rebates. Both years had a high number of rebate checks. This jump in percentage suggests that the 2005 act may have played a role in this change.

Whether in New Jersey or elsewhere, filing for bankruptcy is often emotionally stressful. An inability to afford the associated fees can make the process even more distressing. Those confronting these decisions will likely benefit from planning ahead by analyzing their specific problems and working to set aside the necessary funds in order to take advantage of the unique protections offered by the Bankruptcy Code.

Source: Forbes, "Tax Rebates Boost Bankruptcies, and Why That's Not So Bad," David DiSalvo, March 22, 2012

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