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Tax Rebates Lead to Bankruptcy Filings

posted by Bob Lawless

Jialan Wang has a blog post up summarizing her and her co-authors very interesting NBER paper estimating that at least 30,000 to 60,000 liquidity constrained households this will be priced out of bankruptcy because of the increased costs that came with the 2005 changes to the bankruptcy law. Actually, the research does not find that tax rebates lead to bankruptcy filings -- that was just a cheesy trick to get you to read the post. The researchers find that, after receiving tax rebates, people are more likely to file bankruptcy as they now have funds they can use to pay for the bankruptcy fees. They then use the randomization of the delivery of tax rebates in 2001 and 2008 to identify the effect that the higher fees caused on the bankruptcy rates of liquidity constrained households. It is a clever research design, and Credit Slips readers will want to check it out.

Comments

In other words, if you can file for bankruptcy you must not be completely bankrupt. :-)

Alternate title "Homeless Show Lower Bankruptcy Rates." Sigh.

A good bankruptcy attorney can petition to have the filing fees waived.

And how, oh ella, shall the "illiquid" afford to hire a good bankruptcy attorney to file such a petition?

And what are the odds of getting the waiver? In my experience, low.

Perhaps we need to look to nonprofits to start funding bankruptcy filings for low income people. I have been looking to do this kind of work on a volunteer basis, and interestingly, find that it is not being done in Northern California. The bankruptcy court in the Northern District has a program that provides assistance to self-represented filers, but only for motions and adverse proceedings, after debtors have filed their petitions. Why is it that you can get free legal services for many things, but not for bankruptcy?

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