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Up to 1 million Americans too broke to file for bankruptcy

It may sound counter-intuitive to many Texas residents, but potentially up to a million Americans are too broke to go bankrupt. The news comes after a recent study conducted by the National Bureau of Economic Research. The study found that the cost of filing for Chapter 7 bankruptcy, which is the most common kind of personal bankruptcy, is more than $1,500 on average.

Overall, the costs of filing may price out anywhere from 200,000 to one million Americans from filing for bankruptcy. These costs can be split into roughly three categories: the filing fee, legal costs and counseling costs. With the regards to the filing fee, federal courts require a fee that is about $300 merely to file the necessary paperwork. As part of the bankruptcy process, debtors may also have to go through counseling services, which can cost about $85.

The bulk of the cost of filing for bankruptcy, though, seems to stem from legal costs, and Congress may be largely to blame. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act. The aim of the law may well be noble in that it seeks to prevent abuse of the bankruptcy system, but the net effect seems to be that it merely prices lower-income households out of the ability to seek debt relief through bankruptcy.

Nonetheless, options may be available for residents in Texas and elsewhere. According to the study, many households rely on their tax refund in order to afford filing for a Chapter 7 bankruptcy and other forms of personal bankruptcy. Moreover, for many households, while the initial cost may well seem steep, it may be but small potatoes compared to the mountain of debt that a consumer may otherwise face.

Imagine a financial fresh start for your family and the benefits of bankruptcy may far outweigh the costs.

Source: Daily Finance, "Too Broke to Go Bankrupt: Price of Chapter 7 Is More Than $1,500," Blake Ellis, May 7, 2012

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