A new study from , Columbia University and the University of Chicago suggests that people are using their income tax refund to file for bankrupcy.
According to the Huffington Post, bankrupcy filings increase after people receive their refunds. The issue: It costs money to file for bankruptcy and many Americans could not afford to pay fees necessary to file, write economists Tal Gross, Matthew Notowidigdo, and Wash U's Jialan Wang.
Wang and fellow researchers attributed the uptick to the passage of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The law raised legal and administrative fees from an average of $921 to $1,477 and mandated the filer pay for credit counseling.
As a result, the number of bankruptcy filings fell by more than half, although they have since rebounded to near pre-2005 levels.
According to the St. Louis Business Journal, "the 2005 law assumed that rising bankruptcy levels were caused by abuse of the system by wealthy debtors, but the recession has caught many households in a rising tide of unemployment and foreclosure through no fault of their own.” Wang said in a statement. "According to our research, bankruptcy fees prevent the most financially distressed households from being able to file, and tens of thousands of households will have trouble saving up for bankruptcy in 2012.”