Are State Taxes Dischargeable In Chapter 7 | Milwaukee, WI

BREAKING NEWS:   U.S. Department of Justice announces new rules to discharging federal student loans. Find out if you qualify TODAY!

Milwaukee 414-250-7880         Madison 608-465-4594         Green Bay 920-626-3125


Serving all of Wisconsin

Toll-free 866-906-5634  Milwaukee  414-250-7880     Madison  608-465-4594     Green Bay 920-626-3125

Our 3 Step Process

Step 1:
Get Out Of Debt

Step 2:
Clean Up Your Credit

Step 3:
Build Your Score

Home 9 Bankruptcy 9 Are State Taxes Dischargeable in Chapter 7 in Milwaukee, WI

Are State Taxes Dischargeable in Chapter 7 in Milwaukee, WI

by | Feb 28, 2024 | Bankruptcy

Chapter 7’s Influence on State Tax Debts

Many people in Milwaukee, Wisconsin, ask “are State taxes dischargeable in Chapter 7?”. This question can be tricky because there are several things to consider. In this article, we’ll explain what happens to your state taxes when you file for Chapter 7.

In Milwaukee, Wisconsin, people struggling with debt like credit cards and medical bills can file Chapter 7 bankruptcy. This legal process helps them get rid of those debts. A special person called a “trustee” sells some of their belongings to pay back creditors as much as possible. Afterward, the remaining debt is cleared, offering residents of Milwaukee a fresh start while ensuring they stay within set limits regarding assets like their house and car.

Short Summary

  • Filing for Chapter 7 bankruptcy in Milwaukee, Wisconsin, can help individuals struggling with debts like credit cards and medical bills.
  • The process involves a trustee selling some belongings to repay creditors, providing a fresh start after wiping out remaining debts.
  • Special rules in Wisconsin, known as exemptions, limit what creditors can seize in court cases, allowing individuals to keep specific assets like equity, cars, furniture, tools, and more.
  • Specific rules apply to wipe out income tax debt, including filing on time, waiting for the tax debt to be at least 3 years old, and being honest in dealings with the government.
  • Chapter 7 bankruptcy can eliminate tax debt, but it doesn’t automatically remove tax liens.
  • The dischargeability of debts in Chapter 7 is influenced by various factors including the type of debt (e.g., student loans, child support), means test eligibility, timing of debt acquisition, court decisions, divorce settlements, debts from crimes, and distinctions between tax debt and tax liens.

What Can Chapter 7 Bankruptcy Do For Me?

Feeling weighed down by debt? Bankruptcy can help! It offers a clean slate by:

  • Wiping out most or all your debt: Free yourself from credit cards, medical bills, and other burdens.
  • Stopping those annoying calls: Say goodbye to constant pressure from collectors.
  • Keeping your paycheck: No more money being taken directly from your income.
  • Keeping the lights and heat on: Avoid losing essential utilities like electricity and water.
  • Getting a fresh start: Rebuild your finances and move forward with peace of mind.
  • Protecting your belongings: In most cases, you can keep your car, house, and other important items.
  • Keeping your driver’s license: Continue driving without risk of suspension due to debt.

Are All My Properties Exempt in Chapter 7 Bankruptcy?

In Wisconsin, there are special rules that limit what creditors can take away from you if they win a court case against you. These rules are called “exemptions.” There are also federal rules for bankruptcy that protect similar things, but the amounts you can keep are different.

When you file for bankruptcy under Chapter 7, there are certain things you get to keep, even though you’re giving up most of your other belongings. This is called an “exemption.”

Here are some examples of what you can usually keep:

  • Some of the money you have in your house (called “equity”).
  • Your car (up to a certain value).
  • Your furniture and belongings.
  • Tools you use for your job.
  • Life insurance money.
  • Some money in your bank account.

Unlocking the Mystery: Are State Taxes Dischargeable In Chapter 7?

Now, we go to one of the most common questions: Are State Taxes Dischargeable In Chapter 7? Struggling with income taxes in Wisconsin? Filing for Chapter 7 bankruptcy might offer some relief, but it’s not a magic eraser for all debts. Only income taxes and taxes on your business income (gross receipts) can be wiped out, and only if the tax bill came before you filed. This benefit doesn’t apply to other debts or to businesses and partnerships. 

What Should I Consider When Preparing for Chapter 7 Bankruptcy?

Feeling overwhelmed by income taxes in Wisconsin? While Chapter 7 bankruptcy can help eliminate some tax debt, it’s not a free pass for all tax troubles. Here’s the catch:

  • Only certain taxes: This trick only works for regular income taxes owed to the state or feds, not things like penalties for cheating or payroll taxes. Basically, it has to be a normal tax bill you haven’t paid.
  • Be honest: If you tried to hide taxes or filed a fake return, bankruptcy won’t help. You need to have played it straight with the government.
  • Time travel required: Your tax debt needs to be at least 3 years old, meaning the original tax return had to be due 3 years before you file for bankruptcy. 
  • File on time: You also need to have filed a tax return for the debt at least 2 years before filing for bankruptcy. Late filings (even with extensions) don’t count, so make sure you filed on time!
  • Waiting game: The IRS needs to have assessed your tax debt at least 240 days before you file, or not assess it yet. Think of it as a waiting period. If they stopped collecting due to a deal or past filing, the deadline might be longer.

Factors Affecting Dischargeability

In Chapter 7 bankruptcy, the dischargeability of debts is influenced by several factors:

  • Not All Debts Go Away: Most common debts like credit cards, medical bills, and personal loans can be erased in bankruptcy. However, some debts like student loans, child support, alimony, and most taxes cannot be eliminated
  • Means Test: This is a simple test to see if you qualify for a specific type of bankruptcy (Chapter 7). It considers your income, expenses, and family size.
  • Secured Debts (Like Cars and Homes): These debts, like mortgages and car loans, usually cannot be erased in Chapter 7 bankruptcy. However, bankruptcy might still offer some help with these debts.
  • Timing Matters: Debts you took on recently before filing for bankruptcy might be harder to erase. This is because the court might think you’re trying to misuse the system.
  • Judge’s Decision: The judge can deny your debt elimination if you: (1) Didn’t keep good financial records; (2) Lied under oath (perjury) in your bankruptcy case; (3) Hid or destroyed property to avoid paying creditors; and (4) Didn’t complete a required financial management course.
  • Divorce Debts: Debts related to your divorce settlement cannot be eliminated in Chapter 7 bankruptcy.
  • Debts from Crimes: You cannot erase debts you owe as a result of a crime (criminal restitution) in Chapter 7 bankruptcy.

Tax Debt and Tax Liens: What’s the Difference?

Feeling stuck with back taxes? While Chapter 7 bankruptcy can help wipe clean some tax debt, it’s important to understand two key things: debt and liens.

  • Tax debt: Think of it as plain old money you owe the state or IRS. Like a bill you haven’t paid.
  • Tax lien: This is like a legal claim the government puts on your property to secure that unpaid debt. It’s like them saying, “This belongs to us until you pay up!”
  • Bankruptcy and debt: Good news! If you qualify for Chapter 7 and meet specific conditions, bankruptcy can eliminate your tax debt. It’s like erasing that bill!
  • Bankruptcy and liens: Here’s the catch: while bankruptcy removes the debt, it doesn’t automatically remove the lien. Think of it like this: the bill is gone, but the claim on your property is still there.
  • Selling property: If you ever want to sell your property with a lien attached, you’ll need to pay off the debt first. It’s like clearing the claim before selling the house.

File Chapter 7 Bankruptcy Today!

After thoroughly discussing the answer to the question, “Are State Taxes Dischargeable In Chapter 7?” Great! But now you’re feeling overwhelmed with questions. Is that normal? Absolutely! Filing for bankruptcy, especially for taxes, can be confusing.

Don’t worry, you’re not in this alone! An experienced bankruptcy lawyer can be your guide through this complicated process. They’ll help you understand all your options, answer your questions, and make sure you’re on the right track to resolving your state tax issues.

Talking to a bankruptcy lawyer can be a life-changing step. We at Miller & Miller Law in Milwaukee have over 25 years of experience helping people understand their debt relief options, including Chapter 7 bankruptcy. We’ll explain everything clearly, answer your questions, and guide you through the process, step-by-step. 

Other than Chapter 7, we can also help you with wage earner’s plan, student loans, and other bankruptcy alternatives. Schedule a free case evaluation now!

the secrets about bankruptcy they don't want you to know

Complete this form to receive your FREE copy of Attorney Miller’s book, The Secrets About Bankruptcy They Don’t Want You to Know. Order today to begin your personal journey toward true financial freedom.

Sidebar (Book Request)