Bankruptcy is the last resort for many individuals and businesses in Wisconsin who have no other answers. A person who files for bankruptcy is not a failure. They simply ran into some problems along the way that caused them to make this decision. Before filing, make sure it is an informed decision, especially when dealing with tax debts.
It is more likely for a debtor to have tax debt discharged when filing for Chapter 7 bankruptcy than Chapter 13. When filing for Chapter 13, the debtor will have the tax debt restructured in a repayment plan that must be met. This also includes federal tax debt.
There are some requirements that must be met if a debtor wishes to have his or her tax debt discharged. These requirements include:
- Discharge of the tax debt is for income tax
- A legitimate tax return was filed by the debtor
- The tax debt is at least three years old
- The debtor had the tax debt assessed by the IRS at least 240 days prior to filing for bankruptcy
- Willful tax evasion was not committed by the debtor
- Tax fraud was not committed by the debtor
Any penalties assessed on tax debts that are discharged are also eligible to be discharged. Once the tax debt has been discharged, the debtor is no longer responsible for backing those back taxes. The IRS is also no longer allowed to garnish the wages of the debtor to pay the back taxes.
Even if a tax debt is discharged, a federal tax lien placed on property owned by the debtor will still be present following the conclusion of the bankruptcy.
Taxes ineligible for discharge include the following:
- Any tax debt accrued from unfiled tax returns
- Any tax penalties from tax debt that cannot be discharged
- Any trust fund taxes or withholding taxes that were withheld from a paycheck of an employee by an employer.
Visit our page today to learn more about Chapter 13 bankruptcy in Wisconsin.