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Samuel R.W. Price: Make the most of self-evaulation

Posted: May 6, 2010 4:10 p.m.
Updated: May 7, 2010 4:55 a.m.
 
The IRS estimates that between 25 percent and 33 percent of Americans wait until the last possible week to file their income-tax returns. While there are many possible reasons for delaying the inevitable, one of the more acute reasons for countless Americans is a desire to avoid the distressing financial realities confronting them.

For those trudging through the month-to-month financial mire, the mere thought of viewing the financial picture revealed in their W-2s, 1099s, receipts, statements and other records can be agonizing.

Frequently those struggling to manage increased monthly expenses may have adjusted their withholdings to maximize bring-home pay or taken early withdrawals from retirement accounts. Either situation will typically result in significant financial consequences come April, which can understandably prompt taxpayer procrastination.

Earlier this month, it was announced that 158,141 bankruptcy petitions were filed last March. This may seem like a very large number - it is.

But to truly appreciate how large that number is, some context is helpful. On Oct. 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect. Alarm about the potential consequences of this significant overhaul to the federal bankruptcy laws triggered an unprecedented wave of bankruptcy filings in the months and days preceding the reform.

In the third quarter of 2005, more than 542,000 petitions were filed, the largest number of filings until that time. And yet in just the following two weeks - the final pre-BAPCPA days - more than 600,000 petitions were filed. After the new law went into effect, the number of filings dropped precipitously.

Eventually, as bankruptcy attorneys began to discern the effects of the law, and the economic downturn gained strength, the number of filings began to steadily increase.

In 2007, more than 850,000 cases were filed. In 2008, filings increased 31.3 percent to nearly 1.12 million and in 2009, the number of filings again increased, this time by 31.9 percent to more than 1.47 million.

However, the perpetual rise in filings appeared to peak in October 2009, when approximately 134,000 cases were filed. Although the months between November and January are traditionally the slowest for bankruptcy filings, there was some belief that the numbers from the end of 2009 and beginning of 2010 (showing an average of approximately 113,350 petitions per month) indicated that the continued rate of increase was in decline.

After the number of filings for February 2010 was reported (approximately 117,000), the National Bankruptcy Research Center issued a report declaring that, "the rate of increase in filings attributable to the financial crisis is continuing to fall."

That was until more than 158,000 cases were filed in March 2010. Not only was this the largest number of bankruptcy filings since October 2005, it was a 35-percent jump from the prior month - 18-percent higher than March of the previous year, and 17-percent higher than the previous post-BAPCPA high in October 2009.

Those who study bankruptcy filing statistics estimate that approximately 1.7 million new cases will be opened this year.

Financial analysts will undoubtedly spend untold hours attempting to determine the significance of the March 2010 filing surge, but one thing is certain: The effects of the economic struggles facing Americans are ongoing.

As the number of bankruptcy cases continues to increase, the demographics of those filing for bankruptcy protection continues to evolve. According to demographic reports, in 2008, 55.6 percent of those filing for bankruptcy had at least some college education; 73.3 percent were employed or self-employed, while only 13 percent were unemployed.

The rate of filings for 45-64 year-olds increased, as did the rates for those earning more than $40,000 annually, and for married couples.

Collectively, those individually measured demographic factors indicate the 2008/09 recession is shifting middle-class Americans into bankruptcy.

Electing to file bankruptcy is not a simple decision, and should not be taken lightly. However, most of those who are struggling financially have taken any and every measure imaginable to meet their financial obligations before even considering bankruptcy.

But when they find themselves dreading April 15 because of the additional burden that will be piled onto already daunting financial loads, rather than avoiding their economic realities, they should allow themselves the opportunity to thoroughly and objectively evaluate their financial picture.

Continuing to trudge through the financial mire may be valiant, but it may also be futile.

Sometimes taking advantage of the fresh start offered through bankruptcy is exactly what is needed. Certainly that is true for an ever-increasing number of Americans today.

Samuel R.W. Price is an associate with Poole and Shaffery, LLP, a law firm which provides general counsel and litigation services to businesses and management personnel. He can be reached at (661) 290-2991 or at info@pooleshaffery.com. His column reflects his own views and not necessarily those of the Signal. "It's The Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association (www.SCVbar.org). Nothing contained herein shall be or is intended to be construed as providing legal advice.

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