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Can IRS Debt Be Discharged in Chapter 13 Bankruptcy?

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a legally codified financial process designed to help individuals facing overwhelming debt and economic difficulty. It allows qualified persons to pay off their debt in a structured manner over three or five years. The purpose of Chapter 13 is to help debtors regain control of their finances while repaying as many creditors as possible.

Chapter 13 repayment plans are designed to be manageable and are based on income, assets, type of debt, living expenses and an individual’s general financial situation. Chapter 13 repayment plans cover personal debt and certain business debt, as well as tax debt and money owed to the IRS. Each debt’s financial and legal status and how it needs to be repaid depends on that obligation’s specific terms, details and relevant laws and regulations.

How Does Chapter 13 Bankruptcy Differ from Chapter 7 Bankruptcy?

Unlike Chapter 7 bankruptcy, which requires individuals to sell off assets to meet their financial needs and obligations, Chapter 13 allows debtors to keep most of their property as long as they meet the conditions of their bankruptcy repayment plan. Chapter 7 bankruptcy is considered harsher and more disruptive to a person’s life as it often requires extensive liquidation. Chapter 7 is primarily for insolvent individuals with low incomes or high amounts of unsecured debts they can’t realistically pay back.

Conversely, Chapter 13 allows individuals with stable incomes to repair and improve their financial situation without losing their assets. Chapter 13 bankruptcy offers debtors a month-to-month repayment plan to manage their finances better, pay off existing debt, cover living expenses and achieve a fresh financial start. For otherwise financially healthy individuals, Chapter 13 generally offers a much better solution than Chapter 7 bankruptcy because it allows debtors to maintain their daily lives as they pay off their debt obligations in a slow, steady, and structured manner.

Can IRS Tax Debt Be Discharged in Chapter 13 Bankruptcy?

Many individuals struggling with personal and business debt also face challenges paying off tax and IRS debt. These tax debts can include current tax obligations as well as back taxes. Chapter 13 provides a path for paying off or eliminating tax debt as part of the structured repayment process. The good news is that in some instances, debtors may not need to repay all tax or IRS debts in full. Chapter 13 can sometimes fully or partially discharge IRS and general tax debt, depending on the situation.

The IRS collects many types of taxes, including personal and corporate income, payroll, estate, gift, and excise taxes. For many individuals in Chapter 13, IRS personal income tax debts are the primary concern. However, it’s essential to understand every tax obligation concerning the IRS and overall Chapter 13 proceedings.

How Are IRS Income Tax Debts Treated in Chapter 13 Bankruptcy?

How IRS income taxation debts must be repaid typically depends on whether the tax obligation is a priority or nonpriority tax debt. Priority debts and taxes must always be paid in full during the Chapter 13 process. On the other hand, nonpriority taxes may only need to be partially repaid as they are grouped with other unsecured debts such as credit cards and medical bills.

Unsecured nonpriority creditors each share and receive payment from the discretionary income portion of a Chapter 13 repayment plan. Discretionary income is the monthly amount that remains in a debtor’s payment plan after deducting allowed living expenses such as house and car payments.

Because each nonpriority debt receives only a limited part of the finite, remaining discretionary monthly income, some nonpriority debts – including nonpriority tax and IRS debts – will not be fully paid off when an individual completes the three or five-year Chapter 13 repayment timeline. These unpaid nonpriority debts, which can include nonpriority tax and IRS debts, will be permanently discharged and eliminated once the Chapter 13 bankruptcy payment plan concludes.

What Are Nonpriority Taxes?

Taxes are classified as nonpriority if they meet the following conditions:

The taxes are on income or gross receipts.

The tax deadlines (including legitimate extensions) were at least three years before the individual filed for bankruptcy.

The individual filed tax returns at least two years before they filed for Chapter 13 bankruptcy. If the individual did not file a tax return on time or the IRS filed a substitute one, those taxes may be considered priority.

The IRS formally assessed the tax as a liability at least 240 days before the individual filed for bankruptcy.

The individual did not commit unlawful tax fraud or invasion during the corresponding tax year.

Individuals who meet the conditions above may have certain IRS debts treated as nonpriority, meaning they can be fully or partially discharged upon completing the Chapter 13 repayment plan. However, if the conditions are not met, the outstanding tax obligation will be treated as a priority debt and must be fully repaid.

What Are Priority Taxes?

By definition, priority taxes are any taxation debts that do not qualify as nonpriority taxes. This category can include recent income and any taxes that don’t fulfill nonpriority requirements. However, certain IRS tax obligations are always priority taxes. IRS priority taxes that need to be paid in full during Chapter 13 repayment include:

Trust fund taxes, including Federal Insurance Contributions Act (FICA), Medicare, Social Security and any other federal income that employers withhold from their employee’s paychecks

Excise taxes on certain goods, activities or transactions, such as those related to alcohol, tobacco, gasoline, firearms and environmental regulations

Penalties such as Trust Fund Recovery Penalties (TFRP), late filing and late payment penalties, fraud penalties, penalties for underpayment of estimated taxes and other penalties for non-dischargeable taxes

Fraudulent or erroneous refunds or credits on non-dischargeable taxes

Secured debts such as tax liens filed by the IRS against the properties of individuals who owe significant tax payments.

Priority federal taxes must be paid in full to the IRS, along with any applicable fees and penalties. Individuals must also pay any additional priority taxes to the relevant taxing authorities.

In most cases, debtors must speak with their bankruptcy attorney or personal accountant to determine what counts as a priority or nonpriority tax and how best to proceed with Chapter 13 repayment. The Chapter 13 process is extremely helpful for individuals struggling with personal, business, general taxation and IRS debt. However, it can also be complicated and specific, so hiring an appropriate tax, legal or financial bankruptcy professional is always advisable. The good news is that under the right circumstances, it is possible for individuals to partially or fully discharge tax and IRS debt and move forward into a brighter and healthier financial future.

Does Bankruptcy Erase Utility Bills?

The decision to file for any form of bankruptcy is not easy, but if you are dealing with unmanageable or overwhelming debt, bankruptcy is a way to gain some financial breathing room. If you owe a great deal on past due utility bills, a chapter 7 bankruptcy can help you liquidate these debts. A chapter 13 bankruptcy can help you restructure these debts. If you’re facing a utility shutoff, it’s important to file before that happens.

Utility Bills Are an Unsecured Debt

Unlike a debt that is backed by collateral, such as your home or your car, a utility bill is an unsecured debt. If you have made a deposit on your utilities, you may lose it in the process of filing for bankruptcy.

However, you will be protected against shutoff once you file. You may be required to pay an additional deposit after filing. If this is left unpaid, it is possible that you may face a utility shutoff. Work with your bankruptcy attorney to make sure you pay at least the required minimum deposit, post-filing, to keep your lights, heat and water turned on.

The information regarding your unpaid utility bills will be applied to your means test. Because you have to pass a means test to qualify to file bankruptcy, it’s critical that you have all of this information with you when you and your attorney work through the filing information. Your bankruptcy filing process will be less painful if you have all of your debt information included in the filing.

Do I Have to List Unpaid Utility Bills When I File for Bankruptcy?

Because utility bills are an unsecured debt, they need to be included in your bankruptcy filing. Depending on the type of bankruptcy you’re filing, you may be required to restructure the debt and pay at least a portion of it back.

Once you’ve filed for either a chapter 7 or a chapter 13 bankruptcy, you’ll be protected from the calls of creditors. You’ll also be protected from shutoff. You should be protected from these accounts being sent to collections, though outstanding debts that have been sent to collections will still need to be addressed.

Will Filing for Bankruptcy Wipe Out Unpaid Utility Bill Debt?

If you file a chapter 7 bankruptcy, it’s likely that your unpaid utility bill debt will be completely wiped out. As noted above, you may lose your previously paid deposit and you may be required to pay another one in the time allotted after you file for bankruptcy.

If you file a chapter 13 bankruptcy, the unpaid utility bills may be included in the restructure of your debts. Previously paid deposits may be retained by the utility company and another may be required, but you will have time to address the debts.

For those who are being contacted by utility companies for unpaid debts, one of the biggest benefits of any bankruptcy filing is that those call will now be directed to your bankruptcy attorney’s office, rather than your home.

Understanding the Protections of Each Form of Bankruptcy

Chapter 7

A chapter 7 bankruptcy is also known as a liquidation bankruptcy. You can get free of the pressure of unsecured debts, such as credit cards and utility bills, but you will not be protected from repossessions. If your income is simply not enough to cover your bills and your possessions are not extensive, filing a chapter 7 is a fairly quick way to get out from under the pressure of that debt.

There is an income restriction for those who choose to file a chapter 7. You will need to present information about your income from all sources as well as your debts when you start your filing process.

Be aware that a chapter 7 will stay on your credit record for 10 years. It should not take more than 6 months to file and complete the steps of a chapter 7 bankruptcy.

Chapter 13

When you file a chapter 13 bankruptcy, you’re asking for a chance to restructure your debt while getting protection from your creditors. You will be protected from repossessions and foreclosures, but you will be required to participate in a repayment program that will tie up any extra income for up to 5 years.

As a general rule, filing a chapter 13 bankruptcy is the best option for higher income filers. If you’re working to save items bought with secured debt, such as your home and vehicles, a chapter 13 bankruptcy can give you time and a structure. Depending on your location, you will be allowed to keep a vehicle to get to work and your home in the restructure.

A chapter 13 bankrupty will take longer to file; you will need to complete the repayment process to fully discharge your chapter 13. This bankruptcy will stay on your credit report for 7 years.

In the process of filing a chapter 13, you will be provided with guidelines of what monies from your income you can keep for your use. The cost of the repayment plan can be challenging. These restrictions on your spending and your repayment plan will last from 3 to 5 years.

Because the repayment plan can be quite onerous, it’s important to be sure that you’re ready to undertake this effort. For solo filers, the hard work of a chapter 13 can be a source of tremendous stress. For couples, working through a chapter 13 bankruptcy can put a lot of pressure on the relationship.

Keeping the Lights On

If you’re facing overdue bills that you can’t pay and are dealing with the threat of shutoff, it’s worth considering a chapter 7 or chapter 13 bankruptcy. The overall amount of your debt, both secured and unsecured, needs to be carefully considered before you file. The value of the possessions you need to protect will also come into play, and your income will have a large impact on the form of bankruptcy you choose to file. Your attorney can help you make the best decision for your financial future.

What Happens to Creditors During Chapter 7 Bankruptcy?

Chapter 7, also known as liquidation bankruptcy, is the most common form of insolvency with 69% of bankruptcy cases in 2021. While insolvency has a negative connotation and drastically impacts your credit score, it can be a great opportunity to regain control of your finances. If you are considering filing chapter 7 bankruptcy, you should learn about the process to ensure it’s the right option for you. In this article, we will cover what happens to your creditors during Chapter 7 bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy involves liquidating your assets to pay off your debts. The remaining qualifying debts are discharged. The insolvency will remain on your credit score for the next seven years.

Debts that will not be discharged due to Chapter 7 include:
• Child Support
• Alimony
• Student loans
• HOA fees
• Civil rulings involving intoxication or fraud
• Undisclosed debts

Who Should File Chapter 7

Chapter 7 bankruptcy is a great option for anyone drowning in qualifying debt without the required income to pay back those debts. When done strategically, insolvency can prevent late payments and defaulted debts from appearing on your credit score.

You will be required to sell your assets during chapter 7 bankruptcy, which may mean selling your home. You may want to consider another option if you want to keep your house.

Certain assets are exempt, including:
• Vehicles
• Necessary clothing and household goods
• Jewelry
• Pensions
• Vocational tools
• Public benefits
• Personal injury judgments

What Happens to Creditors During Chapter 7?

During insolvency, secured creditors receive first priority. Secured creditors are creditors with collateral.

Examples of secured creditors include:
• Mortgage lender
• Lien holder
• Receivables or equipment lender

Unsecured debt will not be paid. The creditor will not receive any additional payment unless they have insurance that covers insolvency.

Filing for Chapter 7

Step One: Filing Initial Forms
The first step in filing Chapter 7 is to complete the initial paperwork. You will need to present detailed information regarding your finances, including debtors, income, assets, and more. The information in the paperwork must be inclusive. If you fail to list certain assets, you can be found guilty of committing fraud. If you fail to list certain debtors, they won’t get discharged.

Step Two: Pre-Bankruptcy Credit Counseling
Pre-bankruptcy counseling involves a financial professional examining your situation to determine if there are less radical courses of action. If there is no obvious solution, the counselor will approve of the process moving forward.

Step Three: Filing
Once you get approval from the financial counselor, you will finalize the filing. This process includes paying fees. Ask your bankruptcy attorney if you qualify for a fee waiver.

Step Four: Trustee Appointed
The court will appoint a trustee to your case. The trustee will verify the information you presented and liquidate all applicable assets. They will also negotiate payments with your secured debtors.

Step Five: Debts Paid
Secured debts will get paid from the sale of your assets. You will also be required to fulfill agreements related to the secured debt. For example, you may have to relinquish your home to your mortgage lender.

Step Six: Debtor Education
The last step in the process is to go through debtor education. Debtor education aims to prevent future financial problems.

Alternatives to Chapter 7 Bankruptcy

Before you file Chapter 7, you should know your options. Ask your bankruptcy lawyer about how other bankruptcy options will impact you differently. For example, chapter 11 bankruptcy may allow you to keep your home, whereas chapter 7 won’t.

How Bad is it to File for Chapter 7 Bankruptcy?

These days, it’s all too easy to get in over your head in debt. A job loss, medical emergency, or even an unexpected increase in living expenses can put anyone in a tough financial situation that quickly spirals out of control.

Filing for chapter 7 bankruptcy is a one option for wrangling wild money problems. Many people avoid taking this measure, however, because the things they heard about it makes them feel filing would do more harm than good.

Here are a few pros and cons about filing chapter 7 bankruptcy to help you decide if this is the right move for you.

Pro: Chapter 7 Immediately Stops Debt Collection Action

Being constantly hounded by creditors is no one’s idea of a good time. Thankfully, when you file chapter 7 bankruptcy, a protection called the automatic stay falls into place that requires creditors to immediately stop all collection action.

For instance, a creditor who is garnishing your wages must cancel the legal order once they’re notified you filed for bankruptcy. If they receive any money from the garnishment in the interim, they must refund it to you.

While the Automatic Stay only lasts for as long as your case is active, the reprieve you get from credit calls and lawsuits can provide you with the mental space you need to plan your next steps in your quest for a better financial future.

Con: The Automatic Stay Doesn’t Apply to All Creditors

Like many things in life, there are exceptions to the automatic stay rule. The state and federal government can withhold your tax refund to pay any outstanding taxes you owed prior to filing bankruptcy, for example.

Other exceptions include:

  • Modifications to child or alimony support obligations
  • Efforts to collect debts and damages related to criminal actions
  • Wage deductions for loan repayments related to pensions, certain retirement plans, and stock bonuses

Additionally, if you have filed for bankruptcy within the previous year, the length of the automatic stay may be limited to 30 days or eliminated altogether depending on the circumstances of your case. It’s a good idea to consult with a bankruptcy attorney for advice if you think one or more of these exceptions apply to you.

Pro: Debt is Permanently Eliminated

During your bankruptcy, your trustee will pay your creditors with money they receive from liquidating your non-exempt assets. Any balances left in your accounts are subsequently wiped out, meaning you aren’t responsible for paying those bills any longer and the creditors can’t come after you for them.

This means the bankruptcy will free up money you can use for other things, such as rent or building up a savings fund. Additionally, the bankruptcy court requires you to complete a debtor education course that teaches important money management skills to help you avoid financial problems in the future.

Be aware, though, any debts secured by collateral typically require you to surrender the property to the creditor (i.e. vehicle repossession). Sometimes, though, you can keep the property if you can pay the creditor the market value of the item. You must obtain the court’s permission to do this, so discuss the issue with your trustee prior to making any arrangements to buy assets.

Con: Some Debts Cannot be Discharged

Some debts are protected by law and cannot be discharged through bankruptcy; so, you’ll still be responsible for paying them after your case concludes.

Non-dischargeable debts include:

  • Student loans
  • Personal injury lawsuit awards stemming from DUI accidents
  • Debts incurred because of fraud or similar criminal acts
  • Child and spousal support
  • Any debts you omitted from your forms or reaffirm

In some cases, you can still obtain a discharge under special circumstances. For example, you can get a hardship discharge for student loans if you can prove paying them will interfere with your ability to maintain a minimum standard of living.

A bankruptcy attorney can provide information about your options for eliminating non-dischargeable debt, so connect with a lawyer in your area.

Pro: You Can Save Assets

If you’re facing repossession or foreclosure, filing chapter 7 bankruptcy can help you save your assets from being taken by the bank. As noted previously, the automatic stay stops all collection action. So, even if the bank had a repossession order from the court, they can’t do anything until the automatic stay ends.

This gives you time to either get caught up on your payments or work out a new deal with the creditor. For instance, your mortgage company may agree to a loan modification rather than try to sell the home in a bad market where they’re unlikely to recoup their losses.

It goes without saying that you must be able to afford to continue paying for the assets; otherwise, you’ll end up losing the property if you fall behind again.

Con: Some Assets May Be Lost

As noted previously, the trustee will liquidate your assets and pay your creditors any money they get from the process. Bankruptcy laws let debtors exempt property up to a certain dollar amount. However, any property that doesn’t qualify for an exemption will usually be taken.

For example, the vehicle exemption is $1,200 in Wisconsin. If you have a car that’s only worth $500, you can use this exemption to keep the trustee from selling it. However, if you have a vehicle that’s worth $10,000, the trustee will sell the car, give you the exemption amount, and use the rest to pay creditors.

Con: Your Credit Score Will Take a Big Hit

There’s no way around it. Your credit score will take a big hit when you file for bankruptcy. In fact, according to some experts, your score can drop as much as 240 points after undergoing the process. Since the bankruptcy will stay on your report for up to 10 years, it will take a while for the effect to wear off.

Depending on how low your score goes, you may have difficulty obtaining credit. When you are approved for a new credit card or loan, you may be hit with high interest rates and/or unfavorable terms. In some cases, you may be required to have someone co-sign the loan with you before you’ll be approved.

Pros: Rebuilding Credit is Much Easier

While improving your credit after bankruptcy will be challenging, it’s not impossible. In fact, you may find it easier to qualify for certain types of credit, such as secured credit cards, that can help you rebuild your score.

Additionally, the impact a bankruptcy has on your score lessens over time. Not only does the bankruptcy itself become less important, but the discharged accounts will fall off your report as creditors stop submitting updates to the credit agencies about them. You may find your score rebounds much faster than expected, particularly if you’re paying new accounts on time every month.

Con: Filing Bankruptcy Costs Money

Filing chapter 7 bankruptcy in Wisconsin does require you to pay a court fee of $338 plus various minor administrative fees. Attorneys also charge a fee for their services, the amount of which varies depending on the lawyer and where you live. When you’re broke, coming up with all this cash may seem like an impossible task and can add more stress to an already high-tension situation.

The good news is that the bankruptcy court lets petitioners pay the filing fee in installments and may even reduce or eliminate the fee altogether if your income is low enough. Your lawyer may also work with you to develop a reasonable payment plan, so you can get the services you need without putting yourself further in debt.

There are benefits and drawbacks to filing for bankruptcy. If your financial circumstances are dire enough, though, it may be the best option available. Connect with an attorney who can help you decide if filing chapter 7 bankruptcy in Wisconsin is the right solution for you.

What To Expect When Filling for chapter 7

While Chapter 7 bankruptcy may seem like an easy way out of debt, the process can be complicated and emotionally draining. But this shouldn’t scare you, as Chapter 7 will eliminate most of your debts and give you a chance to start afresh. The initial step is to get hold of a bankruptcy attorney who will help walk you through the legal process.

What is Chapter 7 Bankruptcy?

Also called liquidation bankruptcy, Chapter 7 allows you to eliminate most of the debts you owe. The court forgives or discharges the debts and gives you a fresh start. However, it’s worth noting that Chapter 7 does not discharge tax debt, child support, student loans, and alimony.

How Does Chapter 7 Bankruptcy Work?

If you are struggling with your finances, Chapter 7 may be a “second chance” to help you reset your finances. It can eliminate most of your debts, meaning that you won’t have to pay for them. Most cases involved are “no-asset” cases, so you don’t have to worry about your belongings.

Once you’ve filed for chapter 7, here’s how it works:
• A temporary stay is put on your debts by the court. The stay can help stop wage garnishment, debt collection efforts, property repossession, and home foreclosure.
• The appointed trustees sell certain properties. The custodian reviews your finances and keeps an eye on your chapter 7. They can then sell nonexempt property (nonexempt property is chattel that the court does not allow you to keep). The proceeds obtained are used to pay your creditors.
• You are allowed to keep exempt property. You can rest assured that you won’t have to sell everything. However, the list of exempt properties, plus the amount you can exempt, varies from one state to the other.
• The court discharges the remaining debt.

Dischargeable debt under Chapter 7 are:
• Utility bills
• Medical bills
• Social Security overpayments
• Collection agency accounts
• Mortgage loans that you are not able to pay
• Veteran’s assistance loans
• Credit card balances, including late fees and overdue
• Civil court judgment

Non-dischargeable debts include:
• Secured debts
• Alimony
• Child support
• Tax liens
• Personal injury debt
• Student loan

Who qualifies for Chapter 7 Bankruptcy?

When filing for Chapter 7, there are several requirements you need to meet.

Income Counselling

To qualify for Chapter 7, you must pass a bankruptcy means test, which determines if an individual’s disposable income is enough and can be used to make partial payments to unsecured debt. If you fail the test, you can still file for Chapter 13.

No Fraud

If the court finds out that you are attempting to defraud your creditors, it may dismiss your case – for instance, taking a loan and declaring bankruptcy not to repay it.

Credit Counselling

You must finish a credit counseling course, usually within 180 days before filing.

When to File for Chapter 7

Filing for bankruptcy may be the right decision, but it’s important to understand that it will significantly affect your financial future for a few years. So, it’s crucial not to rush into it.

According to Sumeet Sinha, the founder and CEO of finpins.com, a personal finance blog and educational resource, there is a common misconception that individuals and couples should immediately file for Chapter 7 bankruptcy when they face financial difficulties. However, exploring this option is advisable only when creditors are harassing you, experiencing wage garnishment and bank account seizures, and have no other means of repaying your debts.

The Chapter 7 Bankruptcy Process in Wisconsin

Once you’ve decided to file for Chapter 7 bankruptcy in Wisconsin, here’s what you can expect in the process:

First, you’ll meet with a bankruptcy attorney for a free initial consultation. During this meeting, you must provide details about your assets, debts, income, and ongoing legal actions or foreclosures. The attorney will review the situation and determine if you qualify for Chapter 7 based on income limits and means testing. If you qualify, you’ll discuss fees and agree to proceed.

Next, your attorney will prepare and file your bankruptcy petition in federal bankruptcy court. This includes providing schedules that list your assets, income, debts, and expenses. As soon as the petition is filed, an automatic stay goes into effect, which stops collection calls and lawsuits against you.

About a month after filing, you’ll attend a meeting known as 34. This meeting involves the bankruptcy trustee and your creditors. The trustee will ask you questions under oath to review your petition.

If the trustee finds no issue during the 341 meeting, you can expect to receive a discharge in approximately three months. The discharge eliminates most of your debts and prevents creditors from collecting. However, it’s important to note that certain debts, such as student loans and child support, are not charged.

The entire process usually takes between 3 to 6 months. While it can be a stressful experience, filing for bankruptcy offers a fresh start and relief from overwhelming debt. With the guidance of an experienced bankruptcy attorney, you can navigate the process smoothly and emerge debt-free.

To find an attorney, search online for “Chapter 7 bankruptcy Milwaukee” or “Chapter 7 bankruptcy lawyers near me.” Reading reviews from previous clients to gauge their experience, expertise, and approach is a good idea. Most attorneys offer free initial consultations, so meeting with a few is beneficial to finding someone you feel comfortable with.

What to Avoid Before Filing Chapter 7?

• Don’t pay creditors
• No new debt
• No unusual transactions

Life After Chapter 7

Life after chapter 7 can be a fresh start. While the process can be difficult, once your discharge is granted, a huge weight will be lifted off your shoulders.
• Your debts are discharged
• Your credit score may drop temporarily
• You may qualify for loans again


It’s important to note that filing for bankruptcy will temporarily lower your credit score. Chapter bankruptcy will remain on your credit report for up to 10 years. However, the impact on your credit score lessens over time. You can rebuild your credit immediately by using your credit card responsibly and paying bills on time. Regularly checking your credit report and disputing any errors will also help.

Contrary to popular belief, you can qualify for house auto loans shortly after bankruptcy. Initially, you may face higher interest rates, but with time and a good payment history, your credit score will improve, providing more options.

With discipline and time, you can rebound from bankruptcy stronger and wiser. The fresh start you’ve been given is a chance to build good financial habits and secure a stable financial future.

Utility Bills & Bankruptcy

Have you ever opened your utility bill to find an unpleasant surprise? Utility bills can sneak up on you when you least expect it.

The good news is that there are laws in place to protect you if utility bills become unaffordable. You have options like payment plans, reduced rates, or, in extreme cases, declaring bankruptcy to eliminate utility bill debt.

How Utility Bills Can Lead to Debt and Bankruptcy

Utility bills are annoying monthly expenses that can add up over time if left unpaid.
• Late fees and interest charges. Most utility companies charge late fees if not paid on time, usually within 15-30 days of the due date. These fees may average $20-$50 per bill. Unpaid balances often incur high-interest charges, sometimes over 20% APR.
• Service disruption. Failure to pay your utility bills will result in service disconnection. Having your power, water, or gas shut off due to nonpayment can be dangerous and lead to additional fees to restore services.
• Damage to your credit. Unpaid utility bills are reported to the credit bureaus and will hurt your credit score. A few missed payments can drop your score by 100 points or more. Bad credit makes qualifying for loans, credit cards, and insurance difficult.

Utility Shutoff: Know Your Rights Before Services Are Disconnected

Utility companies can disconnect your services for nonpayment, but there are laws protecting consumers. Know your rights before the lights go out.

Notice Required

Utility providers must present a written notice before disconnecting services. The information will state the reason for the utility shutoff and the earliest dates it may occur.

Exceptions Made

Specific consumers qualify for protection from immediate disconnection. This includes those with medical issues where loss of service would be life-threatening.

Knowing your rights can help avoid the headache of utility shutoffs. Don’t hesitate to ask your service providers questions about managing or disputing your bills. Protecting access to essential services is important, especially if money is tight. With communication, reasonable payment plans, and exercising your consumer rights, you can stay connected even when times are tough.

How Are Utility Bills Handled in Chapter 7?

Utility bills don’t just disappear because you’ve filed for bankruptcy. In a Chapter 7 bankruptcy, any utility bills incurred before you file are considered unsecured debts and are typically discharged – meaning you are no longer legally obligated to pay them. However, any bills for service after you file must be paid on time and in full.

Falling behind on current utility bills can cause serious problems. The utility company may require a large deposit to continue or restore services. They could even disconnect your utilities altogether for nonpayment. To avoid issues, set up payment plans with your utility providers immediately after filling for bankruptcy. Be upfront about your situation, and negotiate affordable payment terms to catch up on the past due amounts.

You’ll also want to adjust your utility usage and budget. Look for ways to cut costs by lowering thermostat, turning off lights or electronics when not in use, using fans instead of AC whenever possible, etc. See if you qualify for utility assistance programs that offer discounts for low-income households.

Some individuals fear that filing for bankruptcy may make it difficult to establish new utility services. However, utility companies cannot deny you service solely due to bankruptcy. They can, however, require a deposit for new services based on your payment history and credit score. The good news is bankruptcy will not directly affect your ability to access necessities like power, water, phone, and internet.

With some practical steps, you can ensure your utility needs are met during and after a Chapter 7 Bankruptcy. Communicate openly with your providers, reduce usage costs where possible, and utilize available assistance programs. While bankruptcy eliminates responsibility for past debts, staying current on ongoing bills and maintaining good payment habits after filing will help make the transition to a fresh financial start as smooth as possible.

How Are Utility Bills in Chapter 13 Bankruptcy Handled?

When you file for Chapter 13 Bankruptcy, your utility bills are handled differently than other debts. Utility companies provide essential services, so they are given special treatment under Chapter 13.

How Utility Bills Are Paid

Your utility bills, like gas, electricity, water, and phone services, are considered “priority debts.” This means that you must continue paying them during the bankruptcy. Your Chapter 13 plan will specify the amounts you must pay each month. If you fall behind, the utility company will request permission from the court to disconnect your service.

To ensure uninterrupted utility service:
1. Contact your providers as soon as you file for bankruptcy.
2. Explain that you’ve filed for Chapter 13 and will continue making payments as part of your repayment plan.
3. Provide details about the amounts and due dates specified in your plan.
Most companies will work with you as long as you make the payments you agreed to.

Some utility companies may require a deposit to continue or restore services. Your bankruptcy trustee can request a waiver or reduction of the deposit as part of your repayment plan.

Budgeting for Essential Bills

When creating your Chapter 13 plan, make enough budget to cover all priority debts, including utilities, in full and on time. If payments cannot be made, contact trustee and utility providers immediately to request an adjustment to prevent disconnection.

Keeping your utility services connected during bankruptcy is critical. By communicating with your providers, paying as agreed in the plan, and making adjustments when necessary, you can ensure uninterrupted essential services while you repay creditors through your Chapter 13 plan.

Strategies to Avoid Bankruptcy When Facing Utility Debt

When facing mounting utility bills debt, bankruptcy is the only option. However, there are several strategies you can try first to avoid bankruptcy.

Payment Plans

Contact your utility providers and request payment plans to repay the debt over time. They would rather work with you than cut off the service or force bankruptcy. Ask if they offer budget billing to even out payments or if they waive late fees as you pay down the balance.

Reduce Usage

The less you use, the lower your bills will be. Turn off lights and electronics when not in use, wash only loads of dishes and laundry, unplug devices like gaming consoles, and lower thermostats in winter.

Assistance Programs

Utility companies offer assistance programs for those having trouble paying bills. They provide grants, bill payment plans, and ways to improve energy efficiency.

Filing for Bankruptcy

When utility bills start piling and you cannot pay them, bankruptcy may seem the only option. Filing for bankruptcy can provide relief from utility bills and other unsecured debts. However, it’s not a decision to take lightly and will have consequences.

Filing for bankruptcy should be an absolute last resort. While it can eliminate utility bill debts and provide relief, it will damage your credit for up to 10 years, making it difficult to open new accounts or borrow money. Bankruptcy should only be considered if you have financial hardship you can’t overcome.

High utility bills are no joke and can quickly become unmanageable, severely damaging households. While bankruptcy may seem like an easy way out, it should be the last resort. Ensure you’ve explored all your other options, like reducing usage, payment plans, subsidiaries, or loans. Your finances and credit are too essential to make this decision lightly.

Should I File for Bankruptcy if I Have Medical Debts?

Many Americans have unpaid medical bills. That’s the conclusion reached in several studies, one of which comes from the online loan marketplace LendingTree. It revealed an estimated 1 in 4 Americans have medical debt. It further pointed out that millennials account for 30% of Americans with medical debt, with 24% of Gen Xers, 22% of Gen Zers, and 13% of baby boomers right behind them. As of the writing of this article, Americans collectively owe around $195 million in medical bills. The reason for that debt varies from being uninsured or underinsured to being unemployed or under-employed and just plain bad luck, such as having claims denied by a health insurance provider, being required to pay out of pocket for non-formulary prescription drugs, and high specialist copays. Under the crushing weight of high medical bills, many Americans consider and often go through with filing for bankruptcy, which, in turn, ruins their credit.

How Much Do Americans Owe in Unpaid Medical Bills?

According to a study published by the Kaiser Family Foundation, a non-profit organization focused on national health issues, of the roughly $195 million Americans collectively owe in medical debt, an estimated 6% owe at least $1,000, and around 1% owe approximately $10,000. The foundation further revealed more than half of all adults in America are in debt because of medical and, in some instances, dental bills within the last five years. While medical bills ranging from $1,000 to $10,000 might not seem like much for well-off households, it can be a tall order for the ones that are not. Historically, those not-so-well-off households are often the first to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy to resolve outstanding medical bills.

Studies Show Many Americans Are Filing Bankruptcy To Escape Outstanding Medical Bills

Sadly, many Americans file for Chapter 7 or Chapter 13 bankruptcy when their medical bills become more than they can handle. That’s according to the Consumer Financial Protection Bureau. It found that nearly 66% of all personal bankruptcies filed in the U.S. are due to unpaid medical bills. While filing bankruptcy does get creditors off one’s back, it can negatively affect one’s credit for ten years. The same applies to unpaid medical bills, which can negatively affect their credit for up to seven years. While we are on the topic, the Consumer Financial Protection Bureau revealed roughly 43 million Americans currently have unpaid medical bills on their credit. Having a Chapter 13 or the more commonly filed Chapter 7 bankruptcy, along with unpaid bills, on one’s credit can make it harder to rent an apartment or buy a home. The same applies to buying a car and, in some cases, getting a job.

Should You File Bankruptcy if You Have Outstanding Medical Bills?

According to Rishi Manchanda, a physician, author, and healthcare leader who has spent more than ten years developing strategies to improve health in resource-poor communities, the U.S. has a healthcare system almost perfectly designed to create debt. And few can argue with that assertion. After all, close to 66% of all bankruptcies filed in U.S. courts are related to unpaid medical bills. That said, when someone does not pay their outstanding medical bills, creditors are within their rights to take them to court and have a judgment filed against them. If that happens, a court can enforce any of the following to collect payment from that individual:

• A bank levy
• A real estate lien
• Wage garnishment

Filing bankruptcy can prevent creditors and even courts from trying to collect unpaid medical bills. However, it comes at the cost of ruined credit. For some people, it’s just not worth it. Fortunately, there are other options, some of which include

Negotiating a Settlement With Medical or Debt Creditors

Most hospitals, clinics, dental offices, and other healthcare providers would prefer to negotiate a settlement to resolve unpaid medical bills than to go through the trouble of securing a court judgment. This option often allows individuals to settle their debt for a fraction of what they owe without ruining their credit.

Taking Advantage of Assistance Programs

Another option for dealing with unpaid medical bills without one’s credit taking a hit is to take advantage of assistance programs, especially when it comes to unpaid hospital bills. Examples of these programs include the following:

• Affordable Care Act (ACA)
• Children’s Health Insurance Program (CHIP)
• Consolidated Omnibus Budget Reconciliation Act (COBRA)
• Medicaid
• Medicare
• The Hospital Care Assurance Program (HCAP)

It is important to note that most of these assistance programs have eligibility requirements. Therefore, it’s best to contact the assistance program you’re interested in to confirm you meet their specific eligibility requirements.

When Filing for Bankruptcy Is the Only Option Left

Although it is far from ideal, filing for bankruptcy is a viable way to resolve unpaid medical bills if you’ve already tried other options that don’t involve destroying your credit, like assistance programs and negotiating with creditors. Bearing that in mind, individuals who file for bankruptcy in Milwaukee Wisconsin, much like other parts of the country, have two options to consider when using this legal remedy to resolve their outstanding medical bills: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy

Low-income households and those with assets that have very little or no equity might want to consider filing Chapter 7 bankruptcy to take care of unpaid medical bills. Chapter 7 bankruptcy allows a court to discharge your outstanding debt, effectively giving you a clean slate. Most people choose this option when a creditor threatens to garnish their wages, put a levy on their bank account, or have a lien placed on their home.

Chapter 13 Bankruptcy

Generally speaking, high-income households and those with assets with substantial equity do not qualify for Chapter 7 bankruptcy. However, they usually qualify for Chapter 13 bankruptcy, which doesn’t necessarily wipe out their debt. Instead, it allows individuals to pay all or part of what they owe via a repayment plan. Most repayment plans allow debtors 3 to 5 years to resolve their outstanding debt.

In summary, there are several ways to resolve medical debt that doesn’t involve filing for bankruptcy. However, if those options are unavailable or have already been exhausted, bankruptcy, Chapter 13 or Chapter 7, is a last resort worth considering.

Is Bankruptcy a good option to avoid home foreclosure?

Bankruptcy is a legal process that allows individuals and businesses to eliminate or restructure their debts. It involves petitioning the court for protection from creditors, allowing them to wipe away certain types of debt or reorganize payment plans on outstanding debt. When filing for bankruptcy, an individual can choose between Chapter 7 and Chapter 13.

For individuals facing home foreclosure, filing for bankruptcy may be a good option because it can provide temporary relief from creditors while they attempt to restructure their finances. When you file for bankruptcy, an automatic stay is put in place, preventing creditors from initiating legal action against you. This includes stopping pending foreclosure proceedings as long as the automatic stay is in effect. It also allows time for the debtor to make arrangements with the lender, such as modifying loan terms or negotiating lower payments, so they can continue living in their home.

Types of Bankruptcy

Chapter 7 bankruptcy is the most common type of personal bankruptcy that can help you avoid foreclosure. It involves the liquidation of non-exempt assets and dischargeable debt. Any remaining balance on these debts will be eliminated, allowing individuals to start fresh with their finances. However, filing for Chapter 7 does not necessarily halt foreclosure in process. If you own your home and have equity in it, the trustee may be able to sell your property and use the proceeds to repay creditors.

Chapter 13 bankruptcy is another option for individuals facing a home foreclosure. Unlike Chapter 7, Chapter 13 does not involve liquidating assets; instead, it allows debtors to restructure their payments so they can pay off their debts over three to five years. This allows individuals to keep their homes and make payments that are more affordable for them. For instance, they can reduce their monthly payments, reduce the interest rate on their loan or even have part of the principal balance forgiven.

When Can Bankruptcy May Be a Viable Option?

Bankruptcy may be a viable option for individuals facing home foreclosure if they can prove to the court that their financial hardships are preventing them from making payments on their mortgage. This could include job loss, medical bills, or other unforeseen circumstances.

Bankruptcy should only be used as a last resort when all other options have been exhausted because of its long-term implications, such as a damaged credit report, higher interest rates and difficulty obtaining loans. Filing for bankruptcy is a serious decision that should not be taken lightly. Consult widely with financial advisors and attorneys to understand the implications of this process before moving forward.

Steps Involved in Filing for Bankruptcy

1. Gather All Necessary Documents

You must submit various financial documents, including personal income statements, bank account information and a list of creditors and assets. Ensure that all documents are current and accurate.

2. Complete the Required Forms

The court requires several forms to be completed accurately and thoroughly before your case can be considered. These forms include the bankruptcy petition, assets and liabilities schedules and a financial affairs statement.

3. File the Forms with the Bankruptcy Court

You’ll need to file your forms with the court in your local district and submit all necessary documents along with a filing fee.

4. Attend the Creditors Meeting

This meeting is held to review your case and allow creditors to ask questions. You’ll need to have all of your documents ready and a list of any debts you plan to discharge in the bankruptcy process.

5. Receive Your Discharge

Once all steps in the process have been completed and creditors have received payment, you’ll receive your discharge from bankruptcy. This document will indicate that your debts have been eliminated and you are no longer responsible.

Bankruptcy and Financial Effects

Filing for bankruptcy can have a dramatic impact on your personal finances and credit score. It will stay on your credit report for up to 10 years, making it difficult to obtain loans or credit cards in the future. Credit scores will also drop significantly, which can further delay any future attempts to borrow money. For instance, if your credit score was 700 before filing for bankruptcy, it could drop to as low as 500 afterward.

Furthermore, due to the lower credit score, you may be required to pay higher interest rates on future loans and credit cards. High interest rates can make it challenging to pay off debt. Additionally, creditors may require a co-signer or collateral for you to obtain financing. Getting a co-signer or collateral may be difficult when you’ve filed for bankruptcy.

A good credit score is still achievable after bankruptcy, but rebuilding your credit will take time and dedication. This can be done by making timely payments on existing debts, establishing new lines of credit and avoiding taking out more debt than you can afford. You can eventually recover your credit score and financial health with patience and diligence.

Alternatives to Filing for Bankruptcy

Filing for bankruptcy isn’t the only option when faced with overwhelming debt. Consider other alternatives such as credit refinancing, loan modification or debt consolidation. These options allow you to reduce your monthly payments and sometimes lower interest rates, helping make the debt more manageable.

Credit refinancing involves working with lenders to replace existing debts with smaller loans at a lower interest rate. The reduced payments can make it easier to pay off debt. Similarly, loan modification involves negotiating with creditors to lower interest rates or extend the length of repayment plans.

Debt consolidation involves a new loan to pay off debt at a lower interest rate. While this can make it easier to manage debt, it is crucial to understand the terms and conditions of the loan before agreeing. Some agreements may include hidden fees or other charges.

Under the loan modification option, you work with your creditors to restructure the terms of your debt such as the loan amount or repayment schedule to make it more affordable. The process usually includes providing financial documents such as pay stubs and expenses to demonstrate your current financial situation.


Filing for bankruptcy can be difficult, but if you understand the process and weigh the potential financial effects, it may be the right choice. Alternatives such as credit refinancing, loan modification or debt consolidation are also available if you need help managing your debt. Whatever option you choose, staying informed and taking proactive steps to rebuild your financial health is crucial.

Divorce Debt & Bankruptcy

A divorce’s financial and emotional strain can take its toll on anyone. One of the most frustrating aspects of dealing with a newly single life is navigating the world of finances, specifically credit card debt, taxes, and banking. The interplay between divorce, debt, and bankruptcy can be complex in the context of divorce. The timing of divorce and bankruptcy filings and the specific details of your financial situation can significantly impact the outcome. It’s essential to consult with both a divorce and bankruptcy attorney to explore your options and determine the best course of action based on your circumstances.

Divorce, debt, and marriage are interwoven aspects of our personal and financial lives that can profoundly impact individuals and families. The decision to enter into marriage involves a commitment to share love and companionship and the responsibilities and obligations of merging finances and assets. However, when marriages end in divorce, the division of debts and assets can become complex and contentious, requiring careful consideration and legal guidance.

What is Chapter 7 Bankruptcy?

It is meant to help individuals clear their outstanding debt. It allows the debtor to liquidate all property, real or personal, and discharge the debt in one fell swoop. No repayment plans or repayment plans are assigned, meaning that unsecured creditors are paid in full from any money available at the time of filing.

How Does Chapter 7 Bankruptcy Work?

The process of filing a Chapter 7 bankruptcy is straightforward. The debtor must file an initial petition with their local bankruptcy court, which then notifies the major credit reporting agencies and sends a notice to the debtor’s creditors. All creditors have 20 days to object to the bankruptcy; if they do so, they are given additional time to respond. The debtor then has 30 days in which to respond to these objections.

Who is eligible to file for Chapter 7 Bankruptcy?

Anyone who has unpaid debt may be eligible. This includes credit cards, medical bills, tuition/educational loans, child support, alimony, etc. Many people in these situations mistakenly believe they are not eligible because of previous bankruptcy or because they owe too little money. This is only sometimes the case, and if there are any questions about whether a person is eligible for Chapter 7 bankruptcy, they should contact a lawyer immediately. For eligibility, you need to qualify in the following:

Means Test

You must pass the means test, which compares your income to the median income in your state for a household of a similar size. If your income is below the median, you generally qualify for Chapter 7. If your income exceeds the median, you may still qualify after deducting specific expenses and demonstrating an inability to repay your debts.

Previous Bankruptcy Discharge

If you have received a discharge in a Chapter 7 bankruptcy case within the past eight years, you are generally ineligible for another Chapter 7 discharge. However, you may be eligible for Chapter 13 bankruptcy.

What is Chapter 13 Bankruptcy?

Here, debtors handle their debt slightly differently. Instead of liquidating all property and essentially starting over, in this process, the debtor pays back a portion of their outstanding debt over an extended period while still maintaining the majority of their assets. This allows them to retain some stability and income during a stressful time in life.

How Does Chapter 13 Bankruptcy Work?

The process of filing such a bankruptcy is similar to how Chapter 7 works, with the debtor setting up a repayment plan over three to five years. The debtor has one year after their Chapter 13 filing is completed to make all payments to their creditors. After this time, they are discharged from their bankruptcy and can begin seeking an unsecured loan or credit card.

Who is eligible to file for Chapter 13 Bankruptcy?

To be eligible for Chapter 13 bankruptcy in the United States, you must meet specific requirements:

Regular Income

You must have a regular source of income, such as employment, self-employment, or steady income from other sources. This is to ensure that you have the means to make the monthly payments required under the Chapter 13 repayment plan.

Debt Limits

There are specific limits on the amount of debt you can have to qualify for Chapter 13 bankruptcy. These limits may vary depending on the current bankruptcy laws in your jurisdiction.

Previous Bankruptcy Discharge

If you have received a discharge in a Chapter 7 bankruptcy case within the past four years or a Chapter 13 case within the past two years, you may have limitations on your eligibility for Chapter 13 bankruptcy.

Filing History

There are restrictions on how frequently you can file for bankruptcy. For Chapter 7 bankruptcy, there is an eight-year waiting period between discharges, while for Chapter 13 bankruptcy, the waiting period between previous Chapter 13 cases is two years.

Credit Counseling

Both require credit counseling from an approved agency within 180 days of filing.


The process of filing for bankruptcy is a challenging one. It requires the knowledge and expertise of a qualified lawyer to prepare the paperwork correctly, review all pertinent information, and provide thorough assistance throughout the process. It’s important to note that bankruptcy laws and eligibility requirements can vary, and the specific criteria may differ based on your jurisdiction. Consulting with a qualified bankruptcy attorney familiar with your area’s laws is crucial to determining your eligibility and understanding the specific requirements you need to meet.

Navigating the complexities of divorce debt, and marriage requires a thorough understanding of legal and financial implications. It is essential to approach these matters with clear communication and open-mindedness. By seeking informed advice and making well-informed decisions, individuals can work towards resolving debt issues and ensuring a fair distribution of assets, ultimately moving forward into a new chapter of their lives with more excellent financial stability and emotional well-being.

Eliminating Tax Debt

Regarding financial well-being, no one wants the burden of tax debt to weigh them down. Whether you’re a small business owner coping with IRS liens or an individual overwhelmed by the amount they owe in back taxes, eliminating your tax bill can be daunting and confusing. This blog post provides an overview of what you need to know about getting rid of your tax debt to move forward confidently toward financial freedom.

Understanding Tax Debt

Tax arrears occurs when taxpayers owe the Internal Revenue Service (IRS) money in back taxes. Generally, this is caused by an individual needing to pay all their tax liabilities due for a certain period, either through late or nonpayment payments. Once this happens, penalties and fees can accumulate on your debts. Depending on the circumstances, a taxpayer may be able to negotiate with the IRS to reduce their debt or enter into an installment agreement.

Options for Eliminating Tax Debt

Several options are available when it comes to getting rid of tax-debt. These include:

• Bankruptcy: Bankruptcy is another option for discharging tax bill. Tax bill is often considered unsecured, meaning it can be eliminated or discharged in bankruptcy. However, depending on their circumstances, this option may only be ideal for some. Individuals who file for Chapter 7 or Chapter 13 bankruptcy can have their tax debt reduced, but it’s important to remember that some taxes are not dischargeable.
• Payment Plans: The IRS offers payment plans for taxpayers who are unable to pay their full tax liability at once. These plans allow taxpayers to spread their payments over a set period, usually up to 72 months (6 years). While this option may be the best for some, it can come with hefty interest and penalties.
• Offer in Compromise: If you are unable to pay your taxes in full or via an installment agreement, the IRS may accept what is known as an “offer in compromise” (OIC). With this option, taxpayers can offer to pay less than what they owe, often in a lump sum. To be eligible for an OIC, the taxpayer must prove that paying the full amount would create undue financial hardship.
• Federal Tax Lien: In some cases, the IRS may file a federal tax lien against a taxpayer. This official claim gives the IRS the right to take property or assets to pay off a tax arrears. A tax lien can severely damage an individual’s credit score and make accessing loans or other financial products more difficult. It can also make it difficult for them to sell or transfer property. Taxpayers who have had a federal tax lien filed against them may be able to get it removed if they pay off the full debt amount or enter into an acceptable repayment plan with the IRS.

Chapter 7 Bankruptcy and Tax

Chapter 7 bankruptcy is a legal process in which debtors can discharge most unsecured debts, including tax bill. This type of bankruptcy is designed to relieve people struggling with overwhelming debt. To qualify for Chapter 7 bankruptcy, individuals must pass the means test. This test determines whether or not their income is below a certain level. If it is, then they can file for Chapter 7 bankruptcy and have their tax debt discharged.

A means test entails comparing an individual’s income to the median income for their state. If their income is lower than the median, they can file for Chapter 7 bankruptcy and have their tax arrears wiped out. Taxpayers who don’t pass the means test might still be able to qualify if certain other circumstances are present, such as a high amount of medical expenses.

Chapter 13 Bankruptcy and Tax

The other type of consumer bankruptcy is Chapter 13 bankruptcy, which involves repaying some or all of your creditors through a court-approved repayment plan. With Chapter 13, taxpayers can agree with the IRS to pay back their tax bill over time. This option can be more advantageous than Chapter 7 for those who can afford to pay off some of their debt and wish to avoid having it fully discharged.

In a Chapter 13 bankruptcy, creditors are paid back through a set repayment plan lasting up to five years. During this period, the IRS will cease any collection activities, and interest charges will not accrue on your debt. The court will discharge any remaining tax debt when the repayment plan is complete.

Taxpayers should understand that the IRS has the right to object to a repayment plan or any part of it, so it is important to consult a qualified attorney before attempting to negotiate or settle a tax arrears through bankruptcy.

What Happens If You Fail to File Returns Before the Creditors’ Meeting?

If you fail to file your tax returns before the creditors’ meeting, the court may grant a motion for a substitute return. This means the IRS will prepare an estimate of your taxes owed based on their available information. The court can then use this return to determine how much of your debt needs to be paid to creditors through the repayment plan.

It is important to remember that a substitute return can only be used if you have yet to file your taxes. If you can provide your tax returns before the meeting, the court will use those instead to determine how much your debt needs to be repaid.

Unfortunately, substitute returns often result in more tax bill than if you had filed your returns. This is because the IRS may only have access to some of the deductions and credits available to taxpayers. Therefore, filing your returns before the meeting is important for ensuring that only accurate information is used to determine how much your debt needs to be repaid.

Winding Up

Filing for bankruptcy can be difficult, but it is important if you struggle with overwhelming tax arrears. Understanding how Chapter 7 and Chapter 13 bankruptcy affect your taxes can help you decide the best way to address your financial situation. Additionally, it is important to work with a qualified attorney and tax professional when considering bankruptcy to address your tax bill.

Experienced attorneys can help you understand the process and make sure you are making the best decisions for your financial future. By following these tips, you can ensure that you take the necessary steps to address your tax debt and move on with your life. With the right strategy, filing for bankruptcy can be an excellent way to get relief from overwhelming tax arrears.