Many people in Tennessee and around the country look forward to tax refunds because they allow individuals to make large purchases or pay off significant debts. However, for some, a tax return will allow them to get out of debt by filing for bankruptcy rather than by paying off a creditor.
According to an analysis of data from the Administrative Office of the U.S. Courts by NerdWallet, it appears that there is a spike in the number of bankruptcy filings during March and April. Between 2013 and 2016, there were 24 to 36 percent more bankruptcy filings during March than the year’s monthly average. Similarly, April’s filing rate was also anywhere from 15 to 25 percent higher than the monthly average.
One possible reason that many individuals are using their refunds to file for bankruptcy instead of to pay off bills or to make large purchases is a lack of savings. Per a report from the Federal Reserve, in 2015, 46 percent of adults didn’t have enough money on hand to cover a $400 emergency. Insufficient savings may be causing people to rely heavily on credit cards, which can quickly lead to large amounts of debt.
For many people, standard debt relief processes are not enough to pay back what they owe. Debt can snowball, and people may end up using one credit card to pay for another while racking up fees and interest at the same time. When people are beyond their ability to get out of debt by paying back creditors, they may be able to resolve their problem by filing for bankruptcy. A lawyer could help someone determine if they should file for Chapter 7 or Chapter 13 and let them know what the criteria are for filing.