Can You Eliminate Tax Liabilities Through Bankruptcy in Wisconsin?

Bankruptcy can often provide individuals and businesses with a fresh financial start, but many wonder if it can also help eliminate tax liabilities. In Wisconsin, the relationship between bankruptcy and tax debts can be complex and depends on several factors.

Generally, not all tax debts can be discharged through bankruptcy. The specific circumstances of the tax debt, such as the age of the tax, the type of tax, and the method of filing, will determine if it can be eliminated. For income tax liabilities, they can potentially be discharged if they meet certain criteria.

To qualify for discharge in bankruptcy, the following conditions typically need to be met:

• Age of the Taxes: The tax return must have been due at least three years before the bankruptcy filing. This includes any extensions that were granted.
• Filing Requirements: The taxpayer must have filed a return for the tax debt at least two years prior to the bankruptcy action.
• Assessment of Tax Debt: The IRS or state must have assessed the tax at least 240 days before the bankruptcy filing.
• No Fraud: The tax debt must not be a result of tax evasion or fraud.

Chapter 7 bankruptcy may allow for the discharge of eligible tax debts, while Chapter 13 bankruptcy reorganizes debts and may allow individuals to pay off tax debts over a three to five-year period. One of the unique aspects of Chapter 13 is the potential for the discharge of some tax liabilities that may not otherwise be eligible through Chapter 7.

It's crucial for individuals considering bankruptcy in Wisconsin to consult with a knowledgeable bankruptcy attorney. A legal expert can assess individual circumstances, provide guidance on the eligibility of tax debts for discharge, and guide through the filing process effectively.

In addition to determining whether tax debts can be discharged, the attorney can also help in understanding other financial aspects of filing for bankruptcy, such as exemptions and the potential impact on credit scores. These are important factors that can affect a person's financial future after bankruptcy.

In conclusion, while bankruptcy can provide relief from many types of debts, being informed about its limitations concerning tax liabilities is essential. Each situation is unique, and tailored legal advice is a vital step toward making informed financial decisions in Wisconsin.