Is the cost of bankruptcy preventing Georgians from filing?

When someone makes the difficult decision to file for Chapter 7 or Chapter 13 bankruptcy, they are likely at the end of their financial rope, drowning in debt with little available income to pay their bills. However, when that person begins the bankruptcy process, he or she will likely be met with the unfortunate truth: bankruptcy is expensive.

On average, according to the National Bureau of Economic Research, an average Chapter 7 bankruptcy filing costs upwards of $1,500. As a result, it is estimated that between 200,000 and one million people in Georgia and throughout the country are unable to afford that cost and file for bankruptcy every year. Another 200,000 people who would have otherwise been unable to file will reportedly use their income tax return to do so this year.

This means that, in general, the people who are unable to afford the costs of bankruptcy are those that need it the most. Bankruptcy became more expensive with the passage of the 2005 Bankruptcy Abuse Prevention and Consumer Act, which aimed to prevent bankruptcy fraud by making it more difficult to file.

Since the act went into effect, the bankruptcy rate has fallen only slightly. However, the average income of bankruptcy filers has increased, indicating that people with lower incomes – arguably, the people who need bankruptcy protection the most – are filing at lower rates than people in the middle class.

So what goes into bankruptcy that makes it cost so much? To start, federal courts charge $300 to file a bankruptcy petition. If filers have a household income below 150% of the federal poverty level, they may be able to have those fees waived. However, that is a low threshold that few are able to meet.

Source: CNN Money, “Too broke to go bankrupt,” Blake Ellis, May 7, 2012