Paul L. Caron

Monday, April 25, 2005

Tax Problems #1 Cause of Bankruptcy

Todd Zywicki of The Volokh Conspiracy fingers tax liabilities as the #1 cause of bankruptcies:

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.

(Thanks to InstaPundit for the tip.)

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