Filing bankruptcy allows millions of American’s to clear their debt and move on with their lives, however a recent study conducted by the National Bureau of Economic Research has found that anywhere from 200,000 to 1 million Americans are “too poor” to file for Chapter 7 bankruptcy.
That particular debt protection can cost more than $1,500 to complete and because of the cost many Americans wait for their tax refunds to arrive before filing, in fact a study conducted by Columbia University, the University of Chicago and Washington University in St. Louis found that nearly 200,000 people would not have the money needed to file if they didn’t use a tax refund specifically for that purpose.
The study also revealed that paperwork filing typically only costs $300 while the rest of the fee needed for a bankruptcy goes to the law firm representing a client. Other fees also add to the cost including mandatory pre-bankruptcy credit counseling and a pre-discharge debtor education course. Lawyers for their part claim higher fees are now necessary because they are being forced to jump through more hoops now than they have been required to jump through in the past, causing longer work hours to be claimed in order to complete the average bankruptcy.
In the meantime under the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act the cost of a bankruptcy continues to increase as government entities attempt to reign in the number of cases filed on an annual basis. Since that law took effect the number of bankruptcies has fallen from a rate of 1.4% in 2004 to 1.3% in 2011.
For individuals who can not afford to file a bankruptcy experts suggest finding a pro bono lawyer willing to help, although they warn that finding a pro bono bankruptcy lawyer is only likely for a very small fraction of those in need.
For anyone looking to file on their own experts warn that the process has become extremely complicated and a dismissed bankruptcy will hurt a credit score just as badly as a completed bankruptcy. Essentially a failed attempt at bankruptcy will give a filer all of the downsides of a bankruptcy with none of the benefits.
