An article last week before the bill signing in the AJC, “Going for Broke Won’t Be So Easy“. The reporter actually went to a day of hearings (it doesn’t say for sure, but it looks like they were probably section 341 hearings) and has some reports from the front lines:
A young woman in office attire was trying to hold on to her house and her car.
“Were you behind on your property taxes when you purchased the vehicle?” asked the trustee.
“Yes,” she answered meekly.
Minutes later, a casually dressed, middle-aged couple took her spot at the hearing table.
They didn’t say what had gotten them into trouble, but despite $60,000 in annual income and an additional $6,000 or so in estate money, they had fallen far behind on house payments and other debts. It was their second time in bankruptcy.
A trustee asked an elderly man, in his third trip through bankruptcy court, why he had racked up $18,000 in income tax debts over a period of several years.
“I forgot to pay,” he shrugged.
An interesting thing briefly suggested here is the extent to which tax problems force people into bankruptcy (usually, however, not because they just “forgot” to pay their taxes). There aren’t many good studies on this, but some have concluded that as much as 10% of bankruptcy filings are caused by tax liabilities (and that doesn’t count those who would have alot more money available to pay their debts but for having to pay their taxes or pay their taxes because they are generally nondischargeable in bankruptcy). For those keeping score at home, this exceeds the number of bankruptcies traditionally thought to be caused by health problems, death in the family, college expenses, and gambling.
Given that most lawyers I talk to report that they often see tax problems as a primary cause of consumer bankruptcy, it certainly would be useful if someone had access to data to look at this question. For some reason, however, empirically-minded bankruptcy scholars seem to be largely uninterested in investigating the extent to which bankruptcies are caused by tax liabilities or excessive tax burdens.
Comments are closed.