Other Debts & Related Issues

While many people who file for bankruptcy protection are struggling to pay their mortgage, utilities and other common debts, this is by no means the only type of issue that can be addressed in bankruptcy.

For example, if you have unpaid taxes, bankruptcy can help. Since a bankruptcy filing typically triggers automatic court protection, the Internal Revenue Service or a state taxing authority such as the Illinois Department of Revenue usually must stop collection actions like other creditors. That includes tax levy, filing of a tax lien, and so forth.

Certain tax debt can be eliminated in bankruptcy. The bankruptcy law is relatively clear on what tax debt cannot be wiped out in bankruptcy. Generally, taxes are nondischargeable if they are owed for recent tax years, or if the taxpayer did not file returns. It is not so clear, however, what taxes can be discharged, because it may depend on the facts of the particular case.

If a tax debt is nondischargeable, it is sometimes possible to repay it through a Chapter 11, 12 or 13 plan under the bankruptcy court's protection. Taxes for different years may be treated differently in the plan. Recent taxes must be paid in full. Nondischargeable taxes are not discharged at the completion of the plan if they are not paid in full. Even if the plan pays the entire principal of the taxes, the taxpayer may still owe interest when the plan is completed.

Property Taxes

In Illinois, property taxes are secured by the real estate. A property can be sold for delinquent real estate taxes. The property owner has the right to redeem the property from the tax purchaser before a deadline by paying the full amount due plus interest. If the property is not redeemed before the deadline, the tax purchaser can get a tax deed and, as a result, the owner loses the property.

Bankruptcy filing sometimes can extend the deadline to redeem sold property taxes. Once the bankruptcy is filed, a property cannot be sold for delinquent taxes, nor can a tax purchaser obtain a tax deed, without the bankruptcy court's permission. It may be possible to repay the delinquent property taxes through a Chapter 11, 12 or 13 plan.

Domestic Support Obligations (DSO)

This includes alimony, maintenance and child support. DSOs are nondischargeable, but back child support can be paid through a Chapter 11, 12 or 13 repayment plan under the court's protection. Generally, wage garnishment for back child support can be stopped during the bankruptcy, but deductions can still be made for current obligations. In addition, the debtor must remain up to date on current DSO payment; failure to do so can be grounds for dismissal of the case.

Cosigned Debt

A cosigned debt means that two or more people signed the loan contract or credit application. Anyone that signs such document is liable on the debt. Many people consider themselves "secondary" cosigners, while someone else is a "primary" signer. This is a distinction without difference. When a debt is cosigned, it means that the lender can, in the event of default, go after one, both or all signers. Whose name appears first on the loan paper does not matter.

When one of the cosigners files bankruptcy, he or she is protected by the federal court. The lender can only go after the remaining signer(s), called a "codebtor." In a Chapter 13 case, however, even a codebtor is protected, as long as the debtor pays the debt.

Questions? We Have Answers.

Ledford, Wu & Borges, LLC has offices in Downtown Chicago, the South Side of Chicago, Homewood, North Riverside/Berwyn, the Northwest Side and the Southeast Side. Call 312-574-3327 or contact our offices by e-mail to discuss your options during a free consultation with an attorney.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.