Can Filing for Bankruptcy Eliminate Your Tax Debt?

Individuals file for bankruptcy relief for a variety of reasons. One of those reasons may include tax debt that the person cannot afford to pay.  However, will filing bankruptcy eliminate your tax debt? The answer depends on the type of tax debt and the age of the tax debt. In most cases, old personal income taxes can be wiped out if you meet certain criteria. A Wisconsin bankruptcy attorney can review your tax debt to tell you if you can get rid of tax debt by filing bankruptcy.

Examining Whether Tax Debt Meets Criteria for a Discharge

In most cases, individuals cannot discharge personal tax debt through a Chapter 7 bankruptcy. Tax debt is considered a priority unsecured debt, meaning you must pay this debt even though you file a Chapter 7 bankruptcy case. However, if the tax debt meets three specific criteria, you may get rid of the tax debt in Chapter 7 without paying any money to the IRS.

You must meet all three requirements for your tax debt to be eligible for a bankruptcy discharge in Chapter 7. The three requirements are commonly referred to as the 3-2-240 Rule by bankruptcy lawyers.

  1.     Your tax debt must be a minimum of three years old at the time you file your Chapter 7 bankruptcy petition; AND,
  2.     The tax returns which resulted in the tax liability must be filed a minimum of two years prior to the filing of your bankruptcy case; AND,
  3.     All old tax debts that you wish to eliminate must have been assessed by the IRS a minimum of 240 days before the filing date of your Chapter 7 petition.

If your situation meets all three of the above criteria, you might be able to eliminate the tax debt in your Chapter 7 bankruptcy case. However, you must be careful when calculating the dates because there could be exceptions that apply in your case. For instance, if you file your tax return late or you request an extension to file your tax return, these situations could change the beginning date used to calculate each date.

It is usually best to consult with a Milwaukee WI bankruptcy attorney before you file a Chapter 7 bankruptcy case to eliminate tax debt. Once you file your bankruptcy case, you may not be able to dismiss or withdraw your case, even though you discover you cannot get rid of the tax debt because you calculated the days incorrectly.

What Happens if I File Chapter 13?

In a Chapter 13 case, you propose a bankruptcy plan to repay some of your debts to your creditors with the assistance of a Chapter 13 trustee.

If your old tax debt qualifies under the 3-2-240 Rule, that portion of the tax debt becomes an unsecured debt. As an unsecured creditor, the IRS receives a portion of the debt through your Chapter 13 case. At the completion of the case, the remaining balance of old tax debt is discharged with your other unsecured debts. Any portion of the tax debt that does not meet the requirements of the 3-2-240 Rule remains priority unsecured debt that must be paid in full during your Chapter 13 case.

As in a Chapter 7 case, there could be an exception that changes the dates used to calculate deadlines for old tax debt. Consulting an attorney is usually best to ensure you are using the correct dates.

Contact a Wisconsin Bankruptcy Attorney for More Information

Discharged tax debts in bankruptcy can be complicated in some cases. An experienced Wisconsin bankruptcy attorney at Hanson Payne can review your situation and provide legal advice and guidance about the options you have available for getting out of debt in the least costly and time-consuming process possible. Contact us today.

Working With An Inexperienced Attorney Is Not Worth The Risk

The last thing someone with a legal issue wants to deal with is an attorney who doesn’t know their head from a hole in the ground. But that happens far too often in the bankruptcy and collections world. Many attorneys that are great at helping businesses with other legal matters make huge mistakes when they decide to dabble in collections.

In 2018, Wisconsin Lawyers Mutual Insurance Co. (WILMIC), one of the leading legal malpractice insurers in our state, paid out more in bankruptcy and collections cases than it did in cases tied to any other area of law. This is because bankruptcy and collections cases are easy to mess up if you don’t know what you are doing, and even small mistakes are expensive to fix.

A Compliance Nightmare

From a creditor’s perspective, bankruptcy and collections cases are tricky because complying with the Fair Debt Collections Practices Act (FDCPA) is not easy. The FDCPA is designed to protect debtors, and it does a great job of it. Creditors must follow very specific rules on disclosures, communication with debtors, and timing, or face serious consequences.

Working with an attorney who isn’t familiar with the FDCPA puts you at risk of not just losing the opportunity to collect on your debts, but of being sued by the debtor.

Expensive Mistakes

The FDCPA is a strict liability statute that allows for fee-shifting. This means mistakes are easy for debtors to prove and expensive for creditors to fix.

Strict liability means liability attaches even when a creditor doesn’t know or intend for their action (or inaction) to violate the law. All the debtor has to show is that the creditor did something wrong. It doesn’t matter if the creditor, or the creditor’s attorney, thought what they were doing was fine.

When a creditor or a creditor’s attorney makes a mistake that violates the FDCPA, the debtor can then sue the creditor. If the debtor wins, which they almost certainly will because the FDCPA is a strict liability statute, then the creditor will have to pay damages or a fine, and pay the debtor’s attorney’s fees.

If the creditor was trying to collect from multiple debtors, a debtor’s rights attorney may file a class action lawsuit against the creditor. Such lawsuits are devastatingly expensive for all but the largest companies.

Don’t Hire Someone Who Dabbles In Debt

If you need to collect debts that you are owed, or a debtor you work with has filed for bankruptcy, you need to work with an experienced attorney to protect yourself from easy but expensive mistakes. Working with an attorney who has handled other business disputes for you is not a good idea.

At Hanson & Payne LLC we work with both debtors and creditors so we are intimately familiar with the ins and outs of the FDCPA and the bankruptcy courts. Financial disputes are all we do, so we know how to take care of them quickly and efficiently so you can get back to taking care of business.

Dairyland’s In Debt

If you are struggling to hold on to your family farm you are not alone.

According to the USDA, the estimated median household income for farm families in 2018 was negative $1,553.

In 2018, almost 700 dairy farms across the state of Wisconsin closed. According to data from the Wisconsin Department of Agriculture, Trade and Consumer Protection there are now just 8,046 dairy herds in the entire state. This is a 40 percent drop over the past 10 years.

For the third year in a row, Wisconsin lead the nation in farm bankruptcies filed under Chapter 12 of the bankruptcy code. Other farmers have filed under Chapter 7, Chapter 11, or Chapter 13, or gave up farming and sold everything off without filing for bankruptcy so they aren’t counted in the official “farm bankruptcy” reports, but we see them.

All this is to say, the ag industry is not doing well. If you are struggling, it’s not your fault. Things haven’t looked this bad since the 1980’s Farm Crisis.

At Hanson & Payne we are helping several farming families in Southeast Wisconsin determine what the best path forward for them may be. We don’t push our client’s to file for bankruptcy. We lay out all of the available options and discuss the pros and cons so you can make the decision that is best for you.

We appreciate how difficult it is to decide to give up your way of life and the land your family homesteaded on five generations ago. If you want to try and ride out the current slump, we can help. If you want to keep the house, but not your land, we can help. If you are ready to retire and move south, we can help. No matter what your goals are, we are here to lend a hand.

Losing Your Farm Is Not The Worst Thing That Could Happen

Not a lot of bankruptcy attorneys are talking about this, but we feel the need to say that financial help is not the only help you many need if your farm is in trouble. It’s no secret that suicide is becoming more common among farmers, but it’s probably the only topic people like talking about less than money.

If you are having suicidal thoughts, please ask for help.

You can find toll-free, 24/7 suicide prevention and emotional crisis hotlines at or by calling 1-800-SUICIDE and 1-800-273-TALK.

DATCP’s Farm Center, which can be reached at 1-800-942-2474 on weekdays from 7:45 a.m. to 4:30 p.m. has a lot of resources for farms and farmers in crisis. They can also be reached by email at

Farm Aid’s Farmer Resource Network and Hotline (1-800-FARM-AID) directs farmers to mental health and suicide prevention assistance all over the country.

You wouldn’t hesitate to help a neighbor, friend, or family member who was in distress, so don’t be afraid to help yourself or ask someone to help you.

ShopKo Files For Chapter 11 Bankruptcy

Another icon of the Wisconsin retail world has filed for bankruptcy. Shopko is closing about two-thirds of its retail locations in the coming months, including more than forty stores in Wisconsin as it attempts to re-tool and re-shape itself in Chapter 11 bankruptcy.

Another One Bites The Dust

Shopko is the latest Wisconsin retailer to seek bankruptcy protection in light of changing consumer shopping habits. The Green Bay based big box store has a sizeable footprint in the Great Lakes, Midwest, and Pacific Northwest, but it could not compete with larger chains like Walmart and Target or online shopping trends.

Between now and mid-May, the company will shutter around 70 percent of its existing locations, and hope that its smaller footprint will help it attract a buyer. The company originally planned to close only 39 stores, but the list of closers has steadily increased.

However, some locations will see a stand-alone ShopKo branded optical centers open in the coming months. It is this focus on small locations that may prove the company’s saving grace. Reports indicate that the chain’s most profitable locations were sites with pharmacies and eye doctors and stores in small towns where larger competitors cannot build at their typical scale.

The company’s profitable pharmacy business has already been sold off, mostly to competitors.

Down But Not Out

Shopko’s decision to file for Chapter 11 rather than Chapter 7 bankruptcy is a common one. Businesses and business owners would typically rather salvage something than walk away with nothing.

The Chapter 11 process allows the business to focus on finding and exploiting its core competencies while closing up or selling off less profitable or peripheral enterprises. Debts can also be renegotiated or shifted around much more easily. It can be a hopeful or even joyful experience because it liberates businesses to try something new in a way that would not otherwise be possible.

Hopefully Shopko will come through the Chapter 11 process with a renewed sense of purpose, a strategy for success, as well as a more manageable debt load. If it doesn’t, the Chapter 11 case may be converted to a Chapter 7 case.

In a Chapter 7 case, the assets held by a company are liquidated, the creditors take whatever they can get, and the business is wound down. A recent example of a business that had to convert its Chapter 11 reorganization into a Chapter 7 liquidation is Toys R Us. It simply could not find a path to profitability or a buyer, so it no longer exists.

Don’t Wait Until It’s Too Late

If your company is having financial difficulties or is teetering on the brink of bankruptcy, it’s time to talk to an experienced bankruptcy attorney. The longer you delay, the more limited your options will be. Taking steps to avoid bankruptcy, or choosing to file for Chapter 11 rather than Chapter 7 is only possible if you are proactive.

Theft By Contractor Claims In The Bankruptcy Courts

Shady contractors are about as clichéd as dishonest used car salesmen. Nearly every homeowner has some sort of crazy contractor story to tell, and nearly every contractor does too. Unforeseen circumstances and downright odd stories should not be surprising in an industry that ebbs and flows with the economy, and boasts and eclectic mix of highly skilled and relatively unskilled laborers, but every outrageous contractor story we hear seems to outdo the last. This is one of the reasons why there are unique rules that apply when a contractor files for bankruptcy in Wisconsin, and why bankruptcy cases involving contractors can be so contentious.

Though bankruptcy law is federal law, Wisconsin has a theft by contractor law that applies in cases where a contractor has filed for bankruptcy without finishing their work, or without paying for supplies or labor.

Wis. Stat. section 779.02(5), safeguards against the misappropriation of funds by a contractor working on a private construction project by creating a trust fund for the benefit of the project’s owners, laborers, and suppliers. A contractor’s use of the trust funds for any reason other than to pay for labor and materials on the particular project constitutes theft by contractor.

When a contractor files for bankruptcy, laborers and suppliers who are owed money, and/or property owners who claim the work they have paid for is unfinished or unsatisfactory can use the theft by contractor statute to fight for their share of the insolvent contractor’s bankruptcy estate.

In order to keep such claims from being discharged by the bankruptcy court, the laborer/supplier/property owner must establish:

(1) that a trust existed;
(2) that the debtors were fiduciaries of that trust; and
(3) that the debtors committed fraud or defalcation while acting as fiduciaries of the trust.

Wisconsin’s construction trust fund statute typically satisfies the first and second elements since the law says funds paid to a contractor are to be held in a trust, so the challenging part is proving fraud or defalcation.

Fraud requires a false statement, but defalcation is just the misappropriation of funds entrusted to someone. In the construction trust fund context, the Seventh Circuit Court of Appeals has stated that defalcation is more than mere negligence, but less than fraud. This has been interpreted to mean that the contractor must have acted in bad faith or committed some other act of affirmative misconduct.

In these cases, the courts often try to determine if the contractor actually knew they had a fiduciary duty under Wisconsin law because that is an indication that the contractor knew what he or she was doing was wrong, which could satisfy the third element.

Whether any one claim will be preserved or discharged by the bankruptcy court is difficult to predict without knowing a lot of details about the project, the contractor’s actions, and the actions of other parties. If you think you might have a claim for theft by contractor, or a contractor you are working with has filed for bankruptcy in the middle of a project, we encourage you to call our office to schedule a free consultation with one of our experienced bankruptcy attorneys.

UW System Bails Out UW-Oshkosh

Former UW-Oshkosh Chancellor Richard Wells and former Vice Chancellor Thomas Sonnleitner still face 17-and-a-half years in prison and $50,000 in fines for allegedly assuring lenders that the UW System would bail out the UW-Oshkosh Foundation if it defaulted on its loans. But that is exactly what has happened, and it is raising a lot of eyebrows in the bankruptcy world, in academia, and across the state of Wisconsin.

There’s a bankruptcy case, a civil case, and a criminal case all pending because the UW-Oshkosh Foundation, which is a separate, supposedly self-funded entity designed to support UW-Oshkosh inked five development deals that it hoped would provide revenue to the school over time. It backed two bio-digesters that turn farm animal waste in energy, an alumni welcome center, a sports complex, and a hotel in downtown Oshkosh.

When some of the investments went bust, it was revealed that Wells and Sonnleitner had allegedly promised the Foundation’s lenders that UW-Oshkosh — so students and taxpayers — would back the loans if the Foundation couldn’t make its payments. However, state law prohibits public funds from being spent to benefit private entities.

That being said, it was recently announced that the UW System has stepped up to the plate and agreed to pay $6.3 million to satisfy UW-Oshkosh’s lenders. This is exactly what Wells and Sonnleitner are in trouble for saying would happen, which is an interesting turn of events.

Taxpayers and lawmakers are watching to see exactly where the $6.3 million the UW System will pay is coming from. Academics and college administrators are wondering whether the charges against Wells and Sonnleitner will be dropped.

All of us in the bankruptcy world are interested in this case because this is not the last time we will see a case where lenders believe they have been promised access to assets that someone later says they cannot touch. Many businesses today are really a collection on related entities that work together. It can be unclear what assets are really on the table when a deal is stuck.

That’s where we come in. Our firm wades into the thick of disagreements over who owes and owns what all the time, and we have years of experience settling and litigating such matters. If you are trying to collect a debt and hitting brick wall, or you are trying to fend off an overzealous creditor, we are here to help.

Bankruptcies Force Malls To Get Creative

The mall of the past, which had multiple department stores, a fast-food filled food court, and a handful of smaller speciality stores is dying. But a new type of mall is rising from the ashes. The catalyst for this creative destruction is of course bankruptcy.

When the Sears and Bon-Ton bankruptcies were announced earlier this year, many predicted that mall owners might be the next to file for protection. As we have discussed on this blog many times, one company filing for bankruptcy often sets off a chain reaction, with related retailers or links in their supply chain following suit. Our firm negotiates a lot of business workouts and represents many creditors in the Milwaukee area for this reason.

What we are seeing in the retail industry following the Sears and Bon-Ton bankruptcies is different. Malls are wondering whether they need 3 or 4 huge department stores as anchors when so much traditional department store shopping is now done online or in stand-alone big-box retailers like Walmart and Target.

Some mall owners are looking at their empty spaces and completely reimagining them. A few are subdividing what used to be large stores into smaller spaces. This is a sort of don’t put all your eggs in one basket approach that also capitalizes on the fact that smaller speciality retailers are doing well right now.

Others are remodeling or demolishing former department stores and turning them into co-working spaces, apartments, fitness centers, and hotels. Larger, sit-down restaurants are also being incorporated into many spaces. The all-in-one shopping experience is transitioning into a more complete live-work-play experience.

These mall transformations are certainly different, but they are not that surprising when you think about the fact that department stores were people magnets, and they are being replaced by people magnets that just happen to be something other than a department store.

The bankruptcy process allows creative changes like this to take place. This is the upside of what is often a challenging and frequently frustrating situation. If your business is in trouble, or you do business with a company that appears to be headed for bankruptcy, it is time to talk to an experienced bankruptcy attorney that can help you take advantage of the situation and come out the other side with a plan for moving forward.

To Bankruptcy And Beyond

“To infinity and beyond!” is Buzz Lightyear’s catchphrase in the movie Toy Story, but it is also a helpful way to think about the bankruptcy process. Infinity and bankruptcy both may seem like the end of the line, but, in theory, there’s more out there to explore for those who are brave enough to try.

When one of our Milwaukee-area business clients comes into our office to talk about filing for bankruptcy, all most can think about is the act of filing itself. They aren’t thinking about what it will be like to come out the other side. But there is another side, just like there is something beyond infinity.

While common knowledge would say that there can be nothing beyond infinity, in geometry, if you go beyond infinity, you start coming back to your starting point from the opposite direction. Filing for bankruptcy can be like that as well. Bankruptcy pushes you toward a limit, and when you can go no further, you suddenly find yourself on the other side, with a business that is different, but still alive and kicking.

Need further persuasion that filing for bankruptcy is only the beginning? Take a look at this episode of the NPR podcast Planet Money — you can listen to it or read the transcript. It’s a look at the American bankruptcy system through the eyes of the owner of a chain of appliance stores.

It goes into a lot of detail about the shame Roddey Player felt when he filed for bankruptcy on behalf of the business his father built. All that he and his family had worked for for the past 60 years seemed to be slipping away on his watch, and everyone in town knew about it because the local papers covered the case almost from the minute it was filed. His own son, who was away at college texted him, “you OK?” after hearing the news of the bankruptcy second-hand.

Player was not okay, but his story does not end there. He filed for bankruptcy under Chapter 11, which allows for reorganizations instead of forcing a liquidation. He was able to convince his creditors and the bankruptcy judge that they would ultimately be better off if he remained in business. Today, his company is back on its feet, and is even expanding.

Player and his business went to bankruptcy and beyond, and that is what we help our clients do every day. Not every business owner wants to keep the doors open— and some who would like to are unable to— but enough businesses do make it through the Chapter 11 bankruptcy process to prove that it still works.

Our firm has years of experience shepherding businesses through the Chapter 11 bankruptcy process, and we are always interested in helping others who are not ready to give up the fight. We help businesses go to bankruptcy and beyond!

Wisconsin’s Biggest Distillery Goes Bust, But That’s Not The End Of The Story

Just before Thanksgiving, Wisconsin’s largest distillery filed for bankruptcy. Death’s Door, a company named for the hazardous waterway off the tip of Door County, was at death’s door. But that is not the end of Death’s Door’s story. Like many bankrupt businesses before it, the brand has been bought by an investor who plans to retool and resurrect it.

According to the Wisconsin State Journal, Travis Hasse and Tom Maas, partners in Dancing Goat Distillery in Cambridge, purchased Death’s Door for $2.48 million at the end of a five-hour auction that took 24 rounds and included two other bidding groups. The sale was approved by Judge Catherine Furay in the U.S. Bankruptcy Court for the Western District of Wisconsin in Madison, and will be finalized shortly.

“Death’s Door, founded in 2007, had been using contract distillers to make its products until 2012, when it invested $3 million for the construction of a 25,000-square-foot distillery in a Middleton industrial park… [The new facility had the capacity to] produce up to 200,000 cases a year but the facility did not have a tasting room and production leveled off at about 30,000 cases. In October, Death’s Door, the state’s largest distillery, ended its six-year relationship with Serrallés USA, a Puerto Rican rum importer that helped finance the distillery’s construction. When Death’s Door filed for bankruptcy just before Thanksgiving, it was $6 million in debt to more than 100 creditors, which included about $3.5 million owed to Serrallés.”

Hasse and Maas haven’t released specific details about what they plan to do with the Death’s Door brand, but they say they want to grow the brand within Wisconsin. “That’s what I’ve done with our current brands,” Hasse said. “When I started selling Hasse’s Apple Pie (Liqueur) it’s always been Wisconsin. The backyard is what’s important to us.”

This is great news for Wisconsin, and a great example of how the bankruptcy process can be used to save a company rather than shutter it. Our firm works with lots of businesses in the Milwaukee area who want to use the bankruptcy process to take a pause so they can retool and relaunch.

There is a misconception that filing for bankruptcy means a business will be shutting down. Nothing could be further from the truth. The law is designed to both wind down businesses, and to restart them in a way that will allow them to flourish.

If your business in under financial stress, it may be time to talk to an experienced bankruptcy attorney. Attorneys like the ones who work at our firm can help you determine what your options are. And this goes well beyond bankruptcy. Perhaps you can get by just by renegotiating your loans, or by working out an agreement with your creditors.

Maybe it is not you that is in trouble but a supplier or customer, our firm can help protect your business from being dragged down by someone else in your supply chain. The sooner you take action the better.

Wisconsin Bankruptcy Filings at an All-Time Low

Recently, news outlets reported that bankruptcy filings in Wisconsin have reached an all-time low. This is exciting and encouraging news, as it means that more and more families are finding their way to more stable financial footing. What is behind this decrease in filings and what steps can you take to ensure that you do not need to file for bankruptcy?

What’s Behind the Decrease?

During the peak of the great recession in early 2010, nearly 16,000 Wisconsin consumers and businesses filed for bankruptcy. During the first six months of 2018, roughly 8,800 individuals and consumers filed bankruptcy petitions. This is nearly 45 percent decrease from the peak in 2010.

A number of different factors appear to be contributing to the decreasing Wisconsin bankruptcy filing rates. First, Wisconsin’s unemployment rate is around 2.9 percent, meaning that households are not only seeing more income than they have in recent years but they are also seeing steady income. This is allowing more and more individuals to pay off their existing debts and responsibly assume new debts.

Second, it appears that lenders have gotten much better at helping borrows modify their mortgages when necessary, rather than forcing them into bankruptcy. Many lenders did not have such provisions in place during the great recession and were overwhelmed by the magnitude of mortgage troubles across the nation.

All of this is welcome news for Wisconsin families, but it does not mean that Wisconsin is out of the woods entirely when it comes to needing to file for bankruptcy. Read on to learn about some proactive steps you can take to shore up your finances and recognize the warning signs that you may be at risk of bankruptcy.

Reducing Your Risk of Bankruptcy

It has been said that an ounce of prevention is worth a pound of cure, and that is particularly true when it comes to bankruptcy. Being able to recognize when you are at risk of bankruptcy is one the most important steps when it comes to ensuring you have long-term financial footing. Take some time to sit down with your finances and assess your debts and savings; do you have enough money to carry you through six months of unemployment? If not, now is a good time to start cutting back on spending and increasing your savings.

Additionally, take some time to assess your career and your personal circumstances. Individuals who have been in the same career for a long time are particularly likely to need to file for bankruptcy when their industry takes a hit. The same is true for people who are heading towards divorce or who expect to face significant medical bills in the future. It isn’t fun, but focusing on building your savings now can pay off in a big way down the road.

Need to File for Bankruptcy?

At Hanson & Payne, LLC, we know that no one expects to file for bankruptcy. While the economy is doing better and job market is more stable, we are all just one unexpected life change away from facing financial uncertainty. If that happens to you, our experienced bankruptcy attorneys are ready to help get you through this rough patch in your life. If you need to file for bankruptcy, contact us today.