5 Biggest Reasons Why so Many Chapter 13 Cases Fail

According to available data, only 33% of Chapter 13 bankruptcy cases result in a discharge. For comparison, nearly 96% of Chapter 7 cases succeed.  There are many factors involved that result in such a striking failure rate for chapter 13 cases. We list down the 5 biggest reasons why so many chapter 13 cases fail.

1. Loss of Motivation

Filing Chapter 13 is a long and arduous process. Unlike Chapter 7, which usually lasts for only a few months, in the case of Chapter 13, you need to complete a 3-5 year repayment plan before the remaining debt is discharged.  Many filers simply get tired of the process and realize that fighting to retain certain properties simply isn’t worth their energy.

2. Not Enough Resources

A lot of individuals filing for Chapter 13 bankruptcy just don’t have the required resources to begin with. Often as a sort of last resort, they file for a Chapter 13 case to stop a foreclosure or lawsuit. It is only when once the process is started that the court discovers that the filer doesn’t have the financial means to go through the Chapter 13 repayment plan and dismiss their case.

3. Sudden Changes in the Financial Status

As mentioned before, a Chapter 13 plan is a long drawn process. During that 3-5 year period, a lot could change that would undermine a filer’s ability to go through the plan. They could lose their job, lose their medical insurance, or incur extra expenses due to some unforeseen circumstances. All this impacts their ability to go through with the repayment plan, and their cases are dismissed as a result.

4. Strategic Reasons

Sometimes, debtors themselves may file for Chapter 13 without the intention of completing it through. They do so for strategic reasons. This could range from wanting to delay foreclosures, to avoiding a lawsuit, to negotiating a new settlement with their creditors. Not all of them would necessarily benefit from discharge, and they drop out halfway through the case.

5. Not Hiring an Attorney

Chapter 13 Bankruptcy is a far more complicated process than most people realize. There is a lot of subjectivity in how the legal provisions are interpreted, and you need an experienced legal profession on your side to help you built up your case. According to a 2011 study by the Bankruptcy Court for the Central District of California, of all those who filed for Chapter 13 bankruptcy without an attorney, only less than 0.5% managed to get a confirmation. In comparison, those filers who were represented by an attorney have a confirmation rate of an astonishing 55%!

Struggling with debt and in need of legal assistance? Book an appointment online or call at 512-640-3340 for a free consultation with a seasoned attorney.

Can Declaring Bankruptcy Discharge Your Tax Debt?

If you fail to pay taxes on your earned income to the Federal or state government, you incur tax debt. Unpaid tax debt can result in the individual facing harsh penalties from the IRS or even jail time. If you are unable to bear the burden of your incurred tax debt, could declaring bankruptcy help discharge it? The short answer – yes, it is possible. The long answer however, is a lot more complicated. Continue reading to know why.

Eligibility for Tax Debt Relief

In order to qualify for a tax debt discharge, there are 5 elements you satisfy under the Federal law:

The 240-Day Rule

The “240-day rule” implies that your tax debt must have been assessed by the IRS at least 240 days before the day you file for bankruptcy. This duration may be extended in case of any past suspension of tax collection by the IRS.

Tax Debt Must Be at Least Three Years Due

To be discharged, the said tax debt must be at least 3 years due before the day you file for bankruptcy.

You Must Have Filed a Tax Return

Without filing a tax return on the tax debt you owe, it is virtually impossible to get a discharge. Furthermore, the tax return filing must be at least 2 years old before you can declare bankruptcy on your tax debt.

No Case of Willful Attempt at Taxes Evasion

If the court deemed you to have committed fraud or willfully evaded taxation, then you are barred from getting a discharge of your tax debt.

The Taxes Are Income Taxes

Lastly, only income tax debt is liable for discharge under bankruptcy. Property, payroll, penalties, and any other tax, apart from income, cannot be wiped out by declaring bankruptcy.

As you can see, getting a discharge on your tax debt is technically possible, but the conditions are rather stringent and may disqualify quite a few cases of tax debts. However, there is another catch worth discussing that may prevent you from fully eliminating the specter of your tax debt.

The Additional Catch

A discharge does not eliminate any past tax liens recorded by the IRS on your property before you filed for bankruptcy. To sell the said property, you will first have to pay up to the IRS.

Seek the Help of a Legal Attorney

Because bankruptcy laws can be complicated to understand, it is best to seek the aid of a legal attorney who can give better advice you on how to go through with your bankruptcy case, and eliminate your tax debt. For a free consultation with an experienced lawyer, book an appointment with us online or call 512-640-3340.

Are Retirement Accounts Exempt in Bankruptcy Cases?

Many people fear filing for bankruptcy, thinking that their retirement accounts might be compromised in the bankruptcy process. However, in the overwhelming majority of cases, your retirement accounts are legally protected from creditors during a bankruptcy case. Continue reading to know more about how retirement accounts are exempt in bankruptcy cases and what the limitations are.

Legal Protections

Since Congress brought changes to the bankruptcy laws in 2005, virtually all ERISA-qualified retirement accounts and pension plan funds are exempt from creditors, including 401(k) accounts. With that being said, it would still be a good idea to check with your employer whether 401(k) is ERISA qualified before filing for bankruptcy.

Chapter 13 Bankruptcy

In Chapter 13 Bankruptcy, your assets are not liquidated, but instead, they are used in judging your ability to pay back your creditors during the court-approved three- to five-year repayment plan. Is the balance in your retirement accounts used in their judgment? The answer is no. All ERISA-qualified retirement accounts are exempt from the judgment, and the balance in them does not affect how much you have to pay in your repayment plan.

Limitations on Legal Protection

Even though your retirement funds are exempt from bankruptcy, there are still a few limitations you should be aware of.

Withdrawn Retirement Benefits

If you withdraw money from your retirement account and use it to purchase an asset or transfer it to a regular account, that amount would no longer be considered protected, and will be used up in your bankruptcy case. Additionally, the monthly payment you receive from it will be figured into your means test qualification in case of Chapter 7 bankruptcy or what portion of your unsecured debts you must repay in case of Chapter 13 bankruptcy.

IRA Limitations

For both IRAs and Roth IRAs, the exempted amount is limited to $1,362,800 per person. If you have more than this in your retirement accounts, the excess funds may be taken by the bankruptcy court to pay back creditors. To account for changes in living expenses, the exempt limit is adjusted every three years, and the next time it will be so is in 2022.

Disqualifiers

It is essential to know that general savings accounts, investment accounts, and stock option plans are not considered as retirement accounts, and thus, would not be afforded protection during the bankruptcy process. Additionally, if the court deems your retirement account to be fraudulent, it would be disqualified from legal protection.

Are you considering filing for bankruptcy and in need of legal assistance? Book an appointment online or call at 512-640-3340 for a free consultation with a seasoned attorney at the Law Offices of Sean T. Flynn.

What Should You Expect at a 341 Meeting?

A 341 Meeting, also known as a Meeting of Creditors, may sound unnerving for first-timers. However, the process itself is fairly routine and quick. In the meeting, an appointed trustee will oversee your case, confirm your identity, and proceed to ask a series of questions about your bankruptcy paperwork. Here in this article, we give a detailed overview of what to expect at a 341 meeting.

Preparing for the Meeting

Before going to the meeting, make sure to double-check your bankruptcy petition in case you missed something. You should have all the information provided exactly as it, and as accurate as possible (e.g., the value of your assets, your name as it appears on your government issued ID, etc.). The trustee will be looking at the information you provided, and will check for any signs of misleading information or fraud.

What to Bring

The list of documents you need to bring along for the hearing is short. Typically, you are required only to bring along an approved photo I.D, your Social Security card, and any documents that reflect a financial change since you filed the petition.

The Hearing

Most 341 hearings last no more than 10 minutes. During the hearing, the trustee will ask you a series of routine questions which only demand a simple answer from you. Afterward, they may then proceed to ask questions more specific to your case. Creditors might also be present to ask questions about your finances. Although such cases are rare and most of the time, creditors won’t be present at the 341 meetings.

Some Typical Questions They May Ask

Below are some typical questions a trustee may ask during a hearing. However, different cases may involve a different set of questions, and thus, it always a good idea to check with an attorney before your scheduled 341 meeting.

  1. To the best of your knowledge, is all of the information provided in your bankruptcy papers correct?
  2. Did you recheck your bankruptcy petition and schedules before filing with the court?
  3. Have you listed all of your creditors in the petition?
  4. Have you disclosed all of your assets?
  5. Have you ever declared bankruptcy before?
  6. Did anything change since you filed for bankruptcy?
  7. Have you filed all your due tax returns?
  8. Do you have any domestic support obligations such as alimony or child support?
  9. In the last year, have you made any payments to creditors exceeding a total of $600?

Consider hiring an Attorney.

An attorney can help you better prepare for your 341 meeting by finding and fixing any honest mistake or inaccuracy that may be in your bankruptcy paperwork. Presenting accurate and complete information to the trustee is important, otherwise they may ask you to re-file an updated petition or worse, in case they mistakenly view the information you provided as fraudulent, alert the court. For a free consultation with a seasoned attorney, book an appointment online or call at 512-640-3340.

Filing For Chapter 7 Bankruptcy in Texas? Here are 3 Things You Should Know

Chapter 7 is the most common form of bankruptcy that people apply for in Texas. If you are struggling with repayments on your mounting debt, chapter 7 bankruptcy is often a viable solution to the problem, and can grant you a fresh financial start. However, before you consider filing for Chapter 7 bankruptcy in Texas, here are three important things you should be aware of.

1. Exemptions

Many people are unaware that filing chapter 7 bankruptcy doesn’t automatically imply that they would lose their property. Exemptions exist to provide some degree of protection to the debtors, and allow them a better starting point for regaining their financial well-being. A successful exemption claim can allow you to keep some, if not all, of your property following the conclusion of a bankruptcy case. Both the Federal and State law deal with exemptions. In Texas, it is often better to apply for state exemptions as they are, on a whole, much more lenient to the debtor.

2. Moving to Another Location

For various reasons, people may consider filing for bankruptcy after they have moved to another state or jurisdiction. In Texas, many people do so because of the more favorable exemption laws.

However, there are two important pieces of information you should be aware of; firstly, you must have lived in your current location for at least 91 days before you can file for bankruptcy there. Secondly, you must have lived in the same state as your current jurisdiction for the last 730 days before you are eligible for filing exemptions. This applies to all states, including Texas. If you do not meet these requirements, you have to file for exemptions under either Federal law, or the state you last resided in for a total duration of 821 days or more.

3. Deberry vs. Lowe

The recent court case of Deberry vs. Lowe last year is worth mentioning. After filing for Chapter 7 bankruptcy, Deberry, a Texan resident, successfully claimed an exemption for his home with no objection. Seven months later, the court ordered him to sell the house and he did so likewise. However, he didn’t reinvest the money in another property within six months of sale. The chapter 7 trustee Mr. Lowe, thereafter, filed a lawsuit against Deberry.

However, the 5th Circuit Court of Appeals sided with Deberry in their final decision, allowing him to keep the proceeds of his house sale. In light of this hearing, we can conclude that, in Texas, as long as you owned the property on the date of filing for bankruptcy and successfully claimed an exemption for it with no objection, you can sell it and do whatever you want with the proceeds.

Get Help from a Lawyer

Dealing with the law can be a complicated affair. Hiring a good attorney can save you a lot of headaches as well as vastly improve your chances of having a court decision that is more in your favor. If you located in or near Austin, TX and require an experienced lawyer that specializes in bankruptcy law, then consider the Law Offices of Sean T. Flynn, PLLC. To schedule an appointment, call 512.640.3340 or contact me online.

Why It’s Better to File for Chapter 7 Bankruptcy Before Foreclosure

Imagine this scenario, you missed out on many months of your mortgage payments and now, you are at the risk of losing your property as the lender may move towards foreclosure. Should you file for bankruptcy before or after the foreclosure? Provided that the risk of auction cannot be avoided, filing for Chapter 7 bankruptcy before foreclosure is often better and can bring with it a host of advantages.

Buys You Time The most important advantage of filing for Chapter 7 bankruptcy before foreclosure is that it allows you to buy time. After filing for bankruptcy, the court will issue an automatic stay period, usually a duration of between three to six months. During the stay period, the lender cannot collect debts, nor schedule a foreclosure of your property. You can utilize the stay period to open negotiations with your lender.

Can Help You Save During the stay period, you don’t have to make debt repayments or pay rent because of foreclosure, which allows you to build up your savings. Furthermore, given the current state of the US real estate market, many properties are valued less than what they were mortgaged at. The outstanding amount owed to the lender after the sale of the property is called a “deficiency.” In Texas, lenders have the right to file a deficiency lawsuit after a foreclosure.

Because your mortgage debt is discharged if you file for bankruptcy before foreclosure, once the property is sold, there is no deficiency your lenders can sue you for.

You Don’t Owe Taxes on Forgiven Debt Fortunately, most lenders are not hawkish enough and often forego their right to sue you for a deficiency after foreclosure. However, this still leaves you to contend with the IRS. In their view, the forgiven outstanding debt translates to an income that they can tax. If you are not exempt under the Federal Mortgage Debt Relief Act of 2007, filing for Chapter 7 bankruptcy before foreclosure can save you from acquiring a tax liability.

Allows You a Fresh Start Some debtors may hesitate in filing for Chapter 7 bankruptcy before foreclosure. After all, it can leave them with a bad credit score. But foreclosure can similarly do likewise or worse, while still leaving you with some debt remaining. The harm you suffer from filing bankruptcy is temporary, and it allows you a fresh start to regain your financial health.

Filing for bankruptcy can be a strenuous process, so it is often wise to seek legal help while doing so. At the Law Offices of Sean T. Flynn, PLLC, in Austin, TX, I provide personalized legal service to my clients filing for bankruptcy under Chapter code 7 and 13. With over 8 years of experience in the field, I will assist you in mitigating your financial troubles. To schedule an appointment, call 512.640.3340 or book one directly online.

5 Things You Should Know Before Declaring Bankruptcy on Student Loans

Declaring Bankruptcy on Student Loans

Student loan debt is on the rise across the country as students take in more and more loans to finance their rising tuition fees. In fact, Americans collectively own more than $1.5 trillion in student debt, and the figure is still rising. If you are struggling with managing your student debt, you may wish to file for bankruptcy. However, there are some things you should know before declaring bankruptcy on student loans.

1. Qualifying for Chapter 7 Is Difficult

To file for chapter 7 bankruptcy, you must first make sure you are eligible for it by passing the means test. The income requirements often disqualify many bankruptcy filers from filing under this Chapter.

2. Filing for Bankruptcy Won’t Guarantee a Debt Discharge

Even if you qualify for Chapter 7, you would still have to prove to the court that you are not in the position to pay your student loan debt. You will have to convince the judge that the debt is inflicting extreme hardship on your well-being and that your financial situation is unlikely to change in the near future. As one would expect, cases that win out are quite rare. Filing under Chapter 13 is easier, but it would only reorganize your repayment plans based on your judged ability to pay back the loan.

3. Filing Bankruptcy Is a Stressful Process

It should be stressed that filing for bankruptcy is a lengthy process. Debt discharge can take up to 4 to 6 months under Chapter 7 – that is if you win at court. During the process, you will have to manage finances for the legal fees involved, as well as go through a lengthy list of paperwork. Therefore, seeking the advice of an experienced attorney can help ensure your case is successful. Don’t be discouraged though. While your student loans may not be discharged and the process may be stressful – you may still be able to get some relief. Bankruptcy can eliminate your other debts freeing you up to tackle your student loans or allow you to put them in a reorganization plan.  For some loans, there may even be an income-driven repayment program you can avail yourself of in conjunction with your bankruptcy case.


4. You Can’t Hack Your Way out with a Credit Card

Some clever-mind students may think that they can cheat the system by putting all their student debt on their credit card and then file for its bankruptcy. However, such an attempt would be categorized as fraud. If the court thinks that the attempt was deliberate, expect some negative consequences.

5. It Will Impact Your Financial Health

A completed bankruptcy can linger on your credit report for up to 10 years, impacting your financial health. This may sound discouraging, but not filing for bankruptcy and allowing your debt issue to worsen would also negatively impact your credit score. Discharging your debt allows you to start anew with a clean slate, and many are able to rebuild their financial well-being even before the bankruptcy gets dropped off their report.


Get Legal Help

If you fail to plan, you plan to fail. As mentioned before, filing for bankruptcy is a tiresome process and the court case will not always result in your favor. Therefore, a qualified legal attorney is essential for helping you navigate successfully through the figurative legal labyrinth.

At the Law Offices of Sean T. Flynn, PLLC in Austin, TX, I offer personalized legal assistance for filing under Chapter 7 and Chapter 13 the bankruptcy code. With over 8 years of experience in the profession, you can be sure to obtain a satisfactory resolution in a bankruptcy case. Call + 512-640-3340 or contact me online to schedule an appointment.

5 Steps to Take in Case of a Debt Collection Lawsuit

If you find yourself unlucky enough to be a victim of a collector’s claim, don’t panic! Here are 5 steps to take in case of a debt collection lawsuit.
Steps to Take in Case of a Debt Collection Lawsuit

Being unable to manage one’s debt is stressful enough; the last thing anyone would want is for them to get sued by their creditors. If you find yourself unlucky enough to be in this situation, don’t panic! Take a deep breath and tackle the problem methodically. Here are 5 steps to take in case of a debt collection lawsuit.

1. Respond to the lawsuit

Often, in a state of panic and stress, people will not respond to the lawsuit. Big mistake! By doing so, the default judgment may end up in the collector’s favor. Depending on the state law, the court could order a deduction from your salary for debt repayments, or give the collecting agency some access to your bank account. Thus, responding to the lawsuit is extremely important.

2. Weigh Your Options

Once you have responded, there are many options available to you to help turn the tide in your favor. Challenge the right of the collector to sue you by asking them to provide the necessary documentation. If they are unable to do so, the judge will dismiss the case. Consider asking for proof of the amount owed. This can make things more difficult for the collecting agency as accounts can often change hands multiple times before a lawsuit is filed. Even if this does not result in a case dismissal, the final settlement agreement would likely be of a much lower amount.

3. Point to the Statute of Limitations

The Statute of limitations is a law that states the specific time before a claim can no longer be legally filed. It can vary from state to state. In Texas, the time-span is 4 years for debt collection. In the case of debt collection, the period begins from the last time you were active on the credit account. If your debt is past the statute of limitations, the lawsuit may be liable to be struck out.

4. File for Bankruptcy

In some cases, filing for bankruptcy may be the right option to choose. During the bankruptcy process, your debt collector can’t harass you with collection claims. Filing for bankruptcy can negatively impact your credit score and financial well-being. However, when you are unable to make repayments on your debts, it is often the most viable option on the table, and allows you to start afresh on a clean slate.

5. Hire an Attorney

A qualified legal attorney will advise you better on all the possible options you have on the table to strengthen your defense and improve the chances of winning against the lawsuit. In case your attorney believes that the plaintiff has acted illegally in filing a claim, you won’t even have to pay their legal fees as the court will order the plaintiff to do so instead.

Sean T. Flynn is a veteran legal attorney with over 8 years of experience, specializing in bankruptcy law. If you are in need of a professional personalized legal service, call 512.640.3340 and schedule an appointment directly online.

Bankruptcy Simplified: Chapter 7 vs. Chapter 13

In this article we discuss the main features and differences between the two and whether you should avail Chapter 7 or Chapter 13 for discharging your debt.

If you are ever unlucky enough to get yourself in a situation of unplayable debt then filing for a Chapter 7 or Chapter 13 bankruptcy can be your way of minimizing, or even eliminating, the burden. Many people often get confused between the two, or are unable to decide which one is better for solving their personal debt issues. In this article, we discuss the main features and differences between the two, and whether you should avail Chapter 7 or Chapter 13 for discharging your debt.

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy deals with the liquidation of non-exempt assets as a means to pay off the debts. It can be filed by both businesses and individuals.  Debt discharge is quick, usually taking around 3 to 6 months in most cases. Chapter 7 is the simplest and most common form of bankruptcy program that people file for.

When to Choose

Eligibility for Chapter 7 debt discharge is restricted to only those debtors with a low enough disposable income. Check to see if you qualify by passing the Chapter 7 means test eligibility threshold. Individuals should choose to file for Chapter 7 if their debt is dischargeable, and if creditors are not legally barred from seizing their assets.

Benefits & Drawbacks

The main benefit of Chapter 7 is that you can quickly eliminate most, if not all, of your debt and get a fresh start. The biggest drawbacks are the risks of you losing your property. Fortunately, such case results are rare in the US, and more so in Texas with its more favorable laws. Another drawback is that it may cause a temporary drop in your credit score.

What is Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy, on the other hand,  deals with the re-organization of your debt in order to make it easier for you to repay it. This Chapter is only available to individuals and the debtor cannot receive a discharge until the completion of the Chapter plan. 

When to Choose

You are only eligible for Chapter 13 bankruptcy if you earn a regular income, and if your debt does not exceed $394,725.00 (unsecured) or $1,184,200.00 (secured). Individuals should choose to file Chapter 13 if their debt isn’t dischargeable under Chapter 7, or the value of their assets is worth more than the available exemptions. Additionally, they can also file it if they just want to make up for past outstanding payments on their mortgage or car loan.

Benefits & Drawbacks

The main benefit is that that none of your assets are sold off to pay off your debt. Another advantage is that debt repayments are determined by what you can afford, and further interest isn’t incurred during the duration of the plan. A drawback is that most, or all of your disposable income will be tied up in repayments and you may temporarily see a decline in your credit score.

Before filing for either a Chapter 7 or Chapter 13 debt discharge, it is always recommended to speak with a legal attorney who can best advise you on the course of action you should take in discharging your debt with minimal losses.  If you are in need of a professional personalized legal service, contact The Law Offices Sean T. Flynn at 512.640.3340 or contact directly online.

Get A Fresh Start

Schedule a time to speak with an expereinced Bankruptcy Attorney today!