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Is Chapter 7 bankruptcy too expensive?


Many Smith County residents may be aware that in 2005, federal lawmakers made certain changes to the U.S. Bankruptcy Code. Those changes were included in the Bankruptcy Abuse Prevention and Consumer Protection Act. The purpose of the act was to discourage people from abusing the option of bankruptcy. One of the most significant changes was an increase in filing fees. Some critics have said the increase in fees has created a big problem.

Chapter 7 bankruptcy filing fees increased from $600 to $2,500 after the change in the law. In addition to the filing fees, the debtors have to pay for credit counseling sessions and other fees.

A recent study conducted by the Federal Reserve Bank of New York highlights a situation in which many people who are already having financial difficulty are finding it challenging to afford the fees necessary for a bankruptcy filing. Interestingly, the report revealed that there is a sizeable population of people who are unable to file for bankruptcy because they cannot afford the filing fees but, at the same time, they are also unable to repay their debts.

According to the researchers from the Federal Reserve Bank and Columbia University, this sizeable group of people is from the lowest economic class in the country. Ironically, it is that group that would benefit the most from a personal bankruptcy filing. Financially troubled people who don't file for bankruptcy often struggle to start a new line of credit, and they also have lower credit scores than those who file for bankruptcy. If they can't file for bankruptcy, these individuals face the risk of insolvency, which can result in greater damages to their financial situation.

This research highlights an important point about bankruptcy. While many people think of bankruptcy in negative terms, in fact it can be a very important tool for people to regain financial health. While the fees and other costs associated with bankruptcy can seem intimidating, they are small compared to the benefits of getting out of debt. Texas attorneys with experience helping people to file for bankruptcy can help people to explore all their options for relieving themselves from debt.

Source: Blogs.WSJ.com, "Too Poor to File (for Bankruptcy)," Katy Stech, April 14, 2015

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