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Bankruptcy Law Blog

Wednesday, March 28, 2018

Paying For Bankruptcy With Your Tax Refund

One of the most frustrating parts of filing for bankruptcy can be figuring out how to pay for it. According to a recent analysis, the average attorney fee for a Chapter 7 filing today tops $1,100, with court fees adding $335 more. If it were possible to come up with this sort of cash on the spot, a lot of families wouldn’t need to file for bankruptcy!

We know finding the money to pay for bankruptcy is hard because our clients tell us it is. Other people find it shocking. Over the past few years, we’ve seen news articles in big papers like The Washington Post lamenting the fact that folks are using their tax refunds to pay for Chapter 7 bankruptcy. Out here in the real world, we understand that things don’t come easy, and sacrifices have to be made. And they would probably just put together another preachy article if we spent our refunds on new televisions or whatever they are spending their refunds on. There are no pleasing people that think they know better than you.

The latest article we read is also very critical of the Chapter 13 process. While the Chapter 7 process is what most people think of when they think of bankruptcy – a filer liquidates most of their assets, pays off what debts they can, and then has most other debt forgiven – the Chapter 13 process has become very popular. Under the Chapter 13 process, a debtor is put on a repayment plan administered by the courts, and very little debt is forgiven because the goal is to pay most of it off. The article is critical of the Chapter 13 process because the author assumes people are getting pushed or persuaded to file under Chapter 13 because they can’t afford to file under Chapter 7.

In some ways the author is right. The law does force some people who would prefer to file under Chapter 7 to file under Chapter 13 because they don’t pass the current “means test,” which limits how much money Chapter 7 filers can make. There are also people who choose to file under Chapter 13 because you can pay your legal fees over time instead of up front as you must under Chapter 7. We, of course, make sure our clients know this, but we also tell them about the downsides of Chapter 13. Nobody who hires us is surprised that not complying with a Chapter 13 plan will leave you worse off than you were before you filed for bankruptcy.

The coastal elites need to give us a break. There are a lot of things to think about when you are deciding if you should file for bankruptcy, and if so, under what chapter. Nobody should be scared into filing under one chapter or another by a news article. And anyone who is concerned about coming up with the money to afford to file for bankruptcy should talk with one of our experienced attorneys about what options are available.


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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”