Paying for Chapter 7 Bankruptcy: Tax Time is Also Bankruptcy Time for Many

Paying for Your Chapter 7 Bankruptcy: Tax Time is Also Bankruptcy Time for Many A Chapter 7 Bankruptcy is not an inexpensive endeavor.

A Chapter 7 Bankruptcy is not an inexpensive endeavor.

A Chapter 7 Bankruptcy will normally cost between $1,700 and $3,000, including the filing fee, which is over $300, gross receipts tax and credit report fees. The more complex or difficult the case, the higher the cost, as a general ruleHowever, it is also one of the most valuable legal services a person can purchase when someone needs bankruptcy relief. For instance, if someone needs to eliminate $25,000 in credit card debt, $2,000 spent on a bankruptcy results in a 10 to 1 ratio of the benefit to the cost. That does not even factor in the thousands of interest charges saved. Further, if one is delinquent with their debts, and cannot possibly pay off the debts soon, the bankruptcy will usually be a benefit to the credit score within two years.

Paying for Chapter 7 Bankruptcy

As a bankruptcy lawyer, I often run into situations where people need my services, but cannot find the money to pay them. There are a few frequent sources of a bankruptcy fee:

1. Refrain from paying other creditors, including credit cards or other high interest loans and use those missed payments to pay your bankruptcy attorney.

2. A gift from family or friends.

3. Your savings: Withdrawals or loans from 401(k)’s. You can borrow money from your own savings to file for bankruptcy, but not from a commercial lender.

There is a fourth, and very common way, that people finance their bankruptcies.

People often, and wisely, use their tax refunds to pay their bankruptcy attorney.

The average tax refund in 2013, according to the IRS, was about $3,000, which is enough pay for all but the most complex Chapter 7 Bankruptcies. If a tax refund can be used to eliminate crushing debt, cut off thousands of interest charges on credit cards and other high interest rate loans, such as payday loans, then the use of a tax refund to pay for a bankruptcy is a wise investment.

Statistics from the New Mexico bankruptcy court show that the highest months for filing bankruptcy tend to be February, March and April, with March typically having the highest number of cases filed in any particular calendar year.

Employers are required to get W-2’s to their employees by the end of January. The tax returns typically get filed shortly after, with refunds starting to arrive in February. This leads to a rather predictable bump in bankruptcy filings during the spring of every year.

Eliminating debt – not adding to it

It is also a very smart move. Instead of using that tax refund to get caught up on those credit cards and other dischargeable debts, perhaps it is time to use that tax refund to eliminate them.

If you would like more information about paying for your bankruptcy with your tax returns, please contact me, and I will be happy to speak with you.

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