What Is Replevin? Rare Car Stolen From A Milwaukee Man Provides An Unusual But Perfect Example

“Replevin” is the epitome of legalese. It’s Latin mixed with French. It’s not used in everyday conversation. But it is often thrown around in bankruptcy cases as if everyone knows exactly what it means.

The truth is most people don’t know what it is.

So what is replevin? According to the Merriam-Webster Dictionary, replevin is “an action originating in common law and now largely codified by which a plaintiff having a right in personal property which is claimed to be wrongfully taken or detained by the defendant seeks to recover possession of the property and sometimes to obtain damages for the wrongful detention.”

Breaking this definition down is helpful. It’s a legal action. It is brought by a plaintiff who believes the defendant has wrongfully taken (stolen) or detained (failed to return) a piece of personal property (which means any sort of thing, but not land). The plaintiff wants the property back, and may also want paid for the hassle.

Right now, there is an unusual case pending in the Wisconsin Supreme Court that provides a good example of how a replevin action actually works.

In 2001, thieves broke into the old Monarch Plastic Products factory on Milwaukee’s lower east side and stole a disassembled French sports car that its elderly owner had been trying to restore since 1967. The car, a 1938 Talbot Lago T150 C teardrop coupe, was worth around $7 million.

Not only was the car stolen, so were all the documents and spare parts related to it. Other valuable items in the factory-turned-garage were not touched. There was no sign of a forced entry, but in a sinister turn of events the phone lines to the owner’s house were cut the same day the car was stolen.

In 2005, the car’s owner passed away. He left his entire estate, including the rights to the stolen car, to his cousin, Richard “Skip” Mueller. A few years later, Mueller sold a majority share of the right to own the car to Joseph L. Ford III, who has experience tracking down rare stolen cars.

Then things went quiet, and it seemed like the car was gone forever. But in 2016, the authorities alerted Mueller and Ford that someone was trying to title a now completely restored Talbot with the same chassis number in Illinois!

Mueller and Ford demanded the return of the stolen car, but the man who had purchased it, Rick Workman, refused. Workman claims he had no idea the car was stolen. He purchased it in good faith from a Europen dealer.

So in February 2017, Mueller and Ford filed a replevin action against the company Workman used to purchase the car, TL90108, LLC.

It’s a case that fits the definition of replevin to a T. Mueller and Ford, the plaintiffs, are the rightful owners of a piece of personal property, the Talbot. They are suing the defendant, TL90108, LLC, for the return of the vehicle.

Unfortunately, this case is not as simple as the definition of replevin makes it sound. Wisconsin has a six year statute of limitations in replevin cases. A replevin action must be filed within six years from when the property was first “converted” aka stolen or wrongfully detained.

Mueller and Ford think the countdown clock should have started when they demanded Workman return the car and he refused. Workman says the clock had already run out by that time because it started the day the car was stolen.

It is unclear who is right, so the Wisconsin Supreme Court has agreed to hear this case and decide when the statute of limitations clock starts ticking in a replevin case. Our firm represents clients in replevin cases, so we are keeping a close eye on this case.

Does Declaring Bankruptcy Eliminate Tax Debt?

“…in this world nothing can be said to be certain, except death and taxes.”

— Benjamin Franklin

This quip of Franklin’s is a lasting reminder that Uncle Sam always takes his cut. It was true at the close of the American Revolution, and it remains true now. Not even filing for bankruptcy can help you avoid paying most taxes.

You said “most…”

Whether you can wipe out tax debts by filing for bankruptcy depends on the type of taxes you owe and the type of bankruptcy you file.

Chapter 7

If you are an individual who is eligible to file for bankruptcy under Chapter 7 of the bankruptcy code, you may be able to get past due federal income taxes forgiven. Other taxes, like state level taxes or payroll taxes cannot be discharged.

In order to have your federal income tax debt discharged, you must be able to show:

  • You did not commit fraud or willfully evade paying your taxes.
  • The debt is at least three years old.
  • You filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
  • The income tax debt was assessed by the IRS at least 240 days before you filed your bankruptcy petition, or was not assessed before you filed. This is known as the “240-day rule.”

Our firm’s experienced bankruptcy attorneys can help you determine if you meet these criteria, and if not, what other options are available to you.

Chapter 11 & Chapter 13

If you don’t qualify for a Chapter 7 bankruptcy, or you are filing on behalf of a business, whether your tax debt is dischargeable is a much more complicated question that can’t be easily summarized in a blog post. If this is the situation you are in, the Hanson & Payne team would be happy to meet with you and advise you.

Other Options

If you are struggling to pay off tax debt, and that is what is pushing you toward bankruptcy, there may be another path you can take.

The IRS is often willing to enter into a repayment plan with taxpayers that cannot afford to pay off all their tax debt in one fell swoop. If you think you can eventually pay off your taxes, this can be a great option. You may, however, still be on the hook for late fees and interest.

If you do not believe you will be able to pay off all of your tax debt, but you could pay off a significant chunk of it right now, or over time, you may want to make what is known as an offer in compromise. This is an agreement to pay a lower amount now instead of the full amount later. The IRS is open to this when it believes the amount you are offering is as much as it can reasonably expect to collect over time. To put it another way, the IRS fears you will not pay up in full, so it will take what it can get.

Get the help you need.

Bankruptcy law and tax law are both complicated. We recommend contacting an experienced bankruptcy law firm if you are even remotely considering filing for bankruptcy because of your tax debt.

Industry Shifts Leading to Bankruptcy

Shifts in industries can often lead to major changes. Supply goes up, demand goes down, other factors come in, and an industry changes as a result. Sometimes, these shifts can cause things like widespread bankruptcy among industry participants. Sometimes, the string of bankruptcy is limited to a specific region. For example, the Wisconsin frac sand industry is in the midst of a major downturn. For a number of reasons, major producers of frac sand in the state are facing closure and bankruptcy.

Wisconsin Frac Sand Producer Faces Bankruptcy as Industry Shifts

Between 2010 and 2015, the frac sand mining industry in Wisconsin rapidly expanded. The state’s plentiful silica sand reserves were a natural draw for mining companies and processing plants. The Department of Natural Resources reports that there 128 frac sand facilities in Wisconsin, but this number may start lowering rapidly. In recent years, frac sand mines have begun popping up closer to the Texas oil fields making things easier for the local drilling costs. The oil drilling companies could get the Texas frac sand for much cheaper because they did not have to pay the shipping costs associated with bringing it in from Wisconsin. While the demand for frac sand, which is used in drilling for oil, is hitting all time highs, the demand for Wisconsin frac sand continues to dwindle. The drop in demand for Wisconsin frac sand led to plummeting prices for the commodity.

The pressure being placed on Wisconsin frac sand producers is already evident in record numbers of SEC filings. The bankruptcy filings are beginning. Recently, Emerge Energy Services LP, the owner of Superior Silica Sands, a major frac sand mining company operating in Wisconsin, is facing bankruptcy The company entered into a debt restructuring agreement with lenders this past April. Pursuant to the agreement, the company’s debt obligations will be cleared in exchange for the lenders becoming majority shareholders in the company. The alternative to this is the company filing for Chapter 11 bankruptcy.

Market analysts are confident that more companies will follow suit and estimate that up to 75% of Wisconsin frac sand mines might close. The opening of more Texas mines has led to an oversupply in Wisconsin while the demand for Wisconsin frac sand decreases. There has also been an emergence of frac sand mines in Oklahoma. In the past 18 months alone, more than a dozen mines have appeared in west Texas and Oklahoma. These mines are located near some of the busiest oilfields in the U.S. The Texas mines produce greater than 100 million tons of sand a year. This means that just the Texas mines are producing enough sand to satisfy the estimated annual industry need.  

Experienced Wisconsin Bankruptcy Attorneys

Industry shifts are often the root cause of companies filing for bankruptcy. If your company is in the midst of bankruptcy, Hanson & Payne, LLC is available to answer any of your questions and advise you of your options. What you decide to do now can have a major impact on your future. Contact us today.

D-D-D-Defense Against The Clawback Of Preference Transfers

If one of your customers files for bankruptcy, you can assume that any money they owe you is long gone. If you get paid back anything at all, it will be much delayed and probably pennies on the dollar. That is a well-known risk of doing business without asking for cash on delivery.

A less well-known risk is that money customers pay you will be clawed back if they file for bankruptcy. Payments received from someone who filed bankruptcy less than a year after making that payment to you may be considered “preference transfers.” The bankruptcy trustee can demand that you return such payments to the bankruptcy court so it can determine if you were given preferential treatment by your customer — in other words, getting paid when others were not.

There are several ways to defend yourself against the clawback of a preference transfer, and we have helped our Milwaukee area clients use all of them.

Why Does This Law Exist?

It seems unfair that a business should be punished just because one of its customers has filed for bankruptcy, but the law was actually drafted to combat unfairness. The clawback provisions are intended to prevent some creditors from being treated better than others. Under the law, all of a bankrupt business’ creditors are supposed to be treated equally.

It Still Seems Unfair

If your business is one that got paid and is being asked to give back money that is rightfully yours, you might not agree that the law promotes fairness. Fortunately, there are exceptions to the clawback rule that you may be able to take advantage of. The three most common are (1) the contemporaneous exchange for new value, (2) the subsequent new value and (3) the ordinary course of business defenses.

(1) Contemporaneous Exchange for New Value

Perhaps the most common defense is the contemporaneous exchange for new value defense. It applies when the payment sent to a creditor was intended by both the debtor and creditor to be a contemporaneous exchange for new value, which can include goods, services, credit, or the release of property previously transferred. The important thing is that the money paid was in exchange for something new. The money cannot have been exchanged in order to pay off old debts.

Organizations doing business with debtors who are in financial trouble should make it clear in their bookkeeping that money coming in is being exchanged for something new of value, not paying off past due invoices.

The law works like this because it wants to incentivize companies to keep doing business with troubled organizations in hopes that they can turn things around rather than be forced into bankruptcy.

(2) Subsequent New Value

This defense is only slightly different from the previously discussed defense. In order to claim the subsequent new value defense, the creditor must have given something of value to the debtor after a payment from the debtor was received. Once again, this exception was drafted in order to incentivize the continuation of business relationships in situations where the creditor could easily have been pushed into bankruptcy sooner.

(3) Ordinary Course of Business

This defense applies when the payment subject to clawback was received in the ordinary course of business between the creditor and debtor. In order to take advantage of this defense, the creditor must be able to show that its relationship with the debtor did not change in the time period leading up to the debtor’s bankruptcy filing. No special payments were received, things were just going along like they usually did.

Experience You Can Trust

Our firm has helped many Milwaukee area businesses take advantage of these and other exceptions to the preference transfer law. In our experience, the sooner a creditor acts after being notified of a potential clawback the better. However, it is never too late to try and protect the money you are rightfully owed from flowing into someone else’s pocket. Whether you have just been notified your business was doing business with someone who has filed for bankruptcy, or you have already been asked to return a payment flagged as a preference transfer, don’t hesitate to contact our office and find out what your options are.

Nursing Homes in Receivership Highlight Another Non-Bankruptcy Option

When a business is struggling to stay afloat, and there is a good reason to keep its operations running instead of shutting it down, putting the business in receivership may be an option. Right now, there are several nursing homes in Wisconsin making headlines for their decision to go into receivership. They provide a good example of how the whole process works.

Eight More Wisconsin Nursing Homes Go Into Receivership

This spring, eight skilled nursing facilities — aka nursing homes — run by a company called Dycora Transitional Health & Living were placed into receivership. The facilities will all remain open for the time being, but they will be operated by another company while a buyer is sought. Unless something comes up, the residents will not have to move out and the employees who work there will continue to get paid.

According to the Milwaukee Journal Sentinel, “Dycora is the third company to have its Wisconsin nursing homes placed in receivership in roughly the past two years… In September, Atrium Health and Senior Living reached an agreement with its lender to have a receiver appointed for 23 nursing homes and nine assisted living centers in Wisconsin and one nursing home in Michigan. Similarly, the Fortis Management Group reached a similar agreement with its landlord to have a receiver appointed for its 65 nursing homes and assisted living centers in six states, including 28 in Wisconsin, in July 2017.

The crush of receiverships, and in other instances closures, is blamed on Wisconsin’s low Medicaid reimbursement rate.

How Does Receivership Work?

Receivership is an alternative to bankruptcy. Instead of winding things down and selling off assets through the bankruptcy process, the business stays open but makes it clear that it is in trouble and is looking for someone else to take over its operations.

A company placed into receivership has a person known as a receiver appointed by the courts. The receiver can pay employees and vendors, and hire someone to keep the business running while looking for a buyer.

Receivership is an attractive option for the business owner, who would otherwise be forced to file for bankruptcy. Compared to bankruptcy, a receivership is cheaper, and it is a faster way to sell off a business.

When the business is providing an important service, as a nursing home does, receivership makes sense from a public good perspective. The employees will continue to get paid, and the people in the facilities will continue to be cared for. If the business filed for bankruptcy or shut down, the residents would be at risk of losing their home and not being properly cared for, and the employees would lose their jobs.

Buyers may be interested in purchasing a business in receivership because the company is selling for a good price, and because they can theoretically turn a profit more quickly by buying a business that is already up and running.

Not An Option For Everyone

Going into receivership is not an option for every troubled business. Winding down operations or going into bankruptcy is better in some circumstances, and negotiating a workout is better in others. What options are available to your business depend on the situation you are in. If you would like to find out what paths forward are open to your business, please contact our experienced team at Hanson & Payne, LLC to schedule an initial consultation.

Receivership as an Alternative to Bankruptcy

In Wisconsin, Chapter 128 is a bankruptcy alternative referred to as “receivership.” While many businesses and organizations file for Chapter 11 or even Chapter 13 bankruptcy, receivership can be a nice alternative. Receivership offers the benefit of more limited court appearances and other paperwork than what is involved in bankruptcy. Additionally, a business in receivership can potentially salvage the business through restructuring. Receivership is not, however, a viable alternative to bankruptcy for all businesses in financial distress.

What is Receivership?

Pursuant to Chapter 128, a court-appointed receiver is put in control of all assets, properties, and obligations of an organization. The receiver will comb through the business’s financial records in an attempt to find out the reason for the insolvency. Additionally, the receiver will notify all creditors of the business that it has gone into receivership.

A receiver may also be charged with continued operation of the business if it would be in the best interest of the creditors. If continued operation of the business is best, a receiver may choose to appoint an operating agent who will be tasked with managing the day-to-day dealings of the business. In most cases, the business will continue operations until it is sold off in a process comparable to an auction. The proceeds from the company’s sale are used to satisfy the debts, both secured and unsecured, of the company. The fact that the company has continued to operate throughout the restructuring and sale process makes the transition in ownership that much smoother.

In some cases, the business may be able to be rehabilitated. The receiver may be able to pinpoint the reason that the business has gone into a debt crisis and restructure the company accordingly. If the receiver can find a way to dig the business out of debt and restructure it so that it can become profitable once again, then the business may not need to be sold off. Some liquidation of the assets, however, may still be necessary in order to pay off the business debts. The receiver may also negotiate reductions in debt payment with creditors. Typically, a receiver will have more flexibility than a bankruptcy trustee would have in coming up with ways to pay of the debts of the business.

The receiver may opt for a third option beyond sale or rehabilitation of the company. In some cases, the business may be liquidated. The receiver will be in charge of managing the sale of company assets which can be heavily discounted in order to get the money needed to pay off some financial obligations. It is still possible that not all creditors will be properly compensated.

Wisconsin Bankruptcy Attorneys Protecting Your Best Interests

Bankruptcy can be a necessary path to dealing with times of financial turmoil. It is not always the best way and it can be a difficult time while you are deciding whether it is the right path for you. At Hanson & Payne, LLC, we are here to help you through the decision making process. We will walk you through all of your options. Whether bankruptcy is best for you or an alternative such as receivership, we are here to answer your questions. Contact us today.

Does Filing For Bankruptcy Protect A Business From Lawsuits?

News reports say Purdue Pharma, the maker of popular painkiller OxyContin, is contemplating bankruptcy in response to the many lawsuits (including one filed by Waukesha County) that have named it as one of the parties responsible for the opioid epidemic. Bankruptcy seems to be a common among companies facing big lawsuits, but is avoiding liability really one of the benefits of filing for bankruptcy?

A Common Occurrence

Purdue Pharma is not the first company to consider filing for bankruptcy in the face of potentially crippling liability. The utility company PG&E filed for bankruptcy earlier this year after it was blamed for several devastating wildfires.

Late last year, USA Gymnastics filed bankruptcy in an effort to manage the many claims made against it by gymnasts who allege the organization’s former medical coordinator, Larry Nasser, sexually abused or assaulted them under the guise of medical treatment.

Asbestos maker Johns Manville is credited by many with starting this trend back in 1982, when that company filed for bankruptcy after it was revealed its asbestos products caused mesothelioma.

These businesses and organizations all realized they needed to do something drastic if they wanted answer all the legal claims against them, and perhaps continue to operate. Bankruptcy was their only hope.

Bankruptcy Is A Legal Pause Button

Pretty much everyone is aware that filing for bankruptcy can shield a business from its creditors, but that shield is much more powerful than many people realize.

When a business (or a person) files for bankruptcy, the court issues what is known as a stay. The stay stops all other lawsuits the filer is involved with in their tracks. Creditors cannot collect, adversaries cannot continue discovery, all legal actions are paused. They can only start up again with the permission of the bankruptcy judge.

When a pending or potential legal action might jeopardize a filer’s ability to reorganize under Chapter 11 of the bankruptcy code, and lead the business to shut down, the bankruptcy judge can pull that litigation into the bankruptcy case and work out a solution.

Often, business assets and insurance proceeds are pooled and put into a trust that potential plaintiffs can make claims against. This puts most potential plaintiffs in a better position than they would be in if the company went out of business, or they had to wait until all of the filer’s other creditors were paid off. It also encourages more plaintiffs to come forward since the claims process is typically well-publicized and much simpler than going to court. And it benefits the fieler by reducing the uncertainty of litigation.

Once the uncertainty of costly litigation is dealt with, the filer can use the Chapter 11 process to reorganize and move forward.

A Tough Choice

Businesses who chose to file for bankruptcy when costly litigation threatens to put them out of business are taking a risk. Going through bankruptcy is not easy. It puts intense scrutiny on your business or organization, and forces leadership to make tough choices. However, it may be the best option if litigation costs are mounting.

Increase in Wisconsin Dairy Farmers Filing for Bankruptcy

Wisconsin dairy farmers have been in an increasingly tense financial crisis. With milk prices being in decline over the past decades, dairy farmers in the state have been forced to make the difficult decision to file for Chapter 12 bankruptcy. Chapter 12 bankruptcy is reserved for farmers and fisherman. According to a new report published by the Wisconsin Policy Forum, the number of Wisconsin farms that have filed for bankruptcy has more than doubled since 2014, the year milk prices began to fall. In 2014, there were 22 Chapter 12 bankruptcy cases in Wisconsin. In 2017, the state saw 50 filed.

These numbers are distressing for many reasons, one of which is the detrimental effects that may impact the entire State of Wisconsin. A failing dairy industry means widespread job loss. Dairy farmers would not only find themselves out of work, but then there are the farmers who depend on them to purchase grain. There are also people employed by dairy processing plants that would suffer job losses.

Why has there been in Increase in Dairy Farmer Bankruptcy Rates?

The milk price increase seems to be the trigger point for the increase in filing for Bankruptcy among dairy farmers. There is a decrease in demand for dairy products. The reason for this could be due to the number of alternatives to cow’s milk on the market or an increase in dairy allergies and intolerances. Whatever the reason, the demand for dairy is not at the level it used to be. Demands for products increase and decrease over time, but dairy farmers feel the effects of this more poignantly than other commodity producers. Dairy farmers cannot store and save their product, like grain producers, until prices increase. They need to move the product immediately or it expires.

The Wisconsin Policy Forum Report believes that a major contributing factor to the increase in bankruptcies filed is the decrease in producers’ income. According to the report, the net farm income in Wisconsin plummeted 56 percent between 2011 and 2017. With milk prices low and income levels falling, the farmers would likely be forced to take on more debt and seek bankruptcy. Unfortunately, it does not look like things will be getting better in the near future. The U.S. Department of Agriculture’s 2019 Farm Income Forecast predicts farm debt increasing by 4 percent this year. This means farm debt would be at its highest level since 1982, reaching $426.7 billion.

What is Being Done to Address this Problem?

In the midst of this dairy farm financial crisis, the State and its dairy farmers are looking for ways to help alleviate the problem. The fact that 700 dairy farmers left the business in 2018 is cause for concern. This is the time for some innovative solutions. Farmers are looking into different ways of cutting costs. This includes improvement in management of each cow’s stall. Better management means cleaner stalls. Cleaner stalls mean less bacteria and this means a decrease in the risk of infection which can be costly to treat. Additionally, better stall management means less use of expensive cow sanitizer used in the milking process.

Former Wisconsin Scott Walker also created the Dairy Task Force 2.0 comprised of farmers, processors, and other leaders of the industry. The Task Force is in place to brainstorm ways to help save the dairy industry. More recently the Task Force proposed increasing farmer access to capital although this proposal is a bit controversial. Some believe allowing farmers to borrow more money during times of financial stress could inevitably lead to even higher bankruptcy rates.

Trusted Bankruptcy Attorneys Serving Milwaukee

The State of Wisconsin, a state known for its cheese and dairy products, is proud of its dairy farmer heritage. It is difficult to see the financial issues that face dairy farmers these days. Bankruptcy is a difficult choice to make and comes with seemingly endless legal issues. The experienced bankruptcy attorneys at Hanson & Payne, LLC are here to answer your questions and help you through the entire bankruptcy process. Contact us today.

Small Businesses Hurt By Bon-Ton Bankruptcy

When one business files for bankruptcy it can cause a domino effect that hurts every single company in its supply chain. A recent article on the bankruptcy of Milwaukee-based Bon-Ton highlights the impact the retail giant’s collapse has had on Wisconsin’s small businesses and artisans whose products were sold in local stores through the company’s “Close to Home” program.

The article reveals a lot about the informal relationships and good will that underlie many business transactions. At Hanson & Payne, we know these things are just as important as the contracts between two businesses, especially when trying to negotiate a business workout or otherwise navigate a tricky financial situation, so to see it getting some media attention was quite exciting.

A Hidden Hurt

When Bon-Ton filed for bankruptcy there was a lot of talk about the demise of big box stores and the “end” of brick and mortar. Lost in all the big picture prognostication were stories about the bankruptcy’s impact on small businesses.

According to an article in the Green Bay Press Gazette, “Delaware bankruptcy court records indicate more than 60 Wisconsin-based contractors, vendors, suppliers, consultants and former employees filed claims totaling $2.6 million against the Milwaukee-based retail chain as it sought protection from creditors. Twenty of those claims, totaling $717,269, were filed by smaller companies that make products such as maple syrup, clothing, religious children’s books, jewelry, home art, drinkware, soap and candles.”

Many of these smaller companies who are now creditors in the Bon-Ton bankruptcy were participating in a unique program called “Close to Home” which encouraged Bon-Ton stores to set aside shelf space for locally made products. This is not something many big box stores do, so the artisans and small business owners that participated in the program, and are still owed money by Bon-Ton that they will likely never see, are not bitter about their losses.

Wisconsin Nice To The Extreme? Or Just Good Business?

One seller remarked, “[The Close to Home program] was a fine arrangement. It worked out well for us… Bon-Ton’s executives were more than nice to me, more than kind to me.” It seems shocking that a creditor would say something like that knowing that they will probably never get paid what they are owed, but is it really that unusual?

Yes and no. Creditors are upset when they don’t get paid money they are owed, but they are often also understanding. Nobody wants to see a business partner fail because the financial stress of that failure trickles down the entire supply chain. When being flexible is possible, it is the preferred course of action for many business owners.

Over the years, our firm has helped countless Milwaukee area businesses be flexible in order to avoid pushing a struggling business partner into bankruptcy. We know what works and what doesn’t, and we have developed strong relationships with the lenders and attorneys whose cooperation and patience are a necessary component of any successful business workout. Our tenure in the field has also led to our credibility with the commercial lenders, whose yes or no vote on a workout proposal typically means the difference between an opportunity to recover and a bankruptcy filing. If you need help working out a flexible but fair deal with someone in your supply chain, we are ready to lend a hand.

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.