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Lake County bankruptcy lawyerAre you substantially behind on your bills and so far in debt that you are considering bankruptcy? Is a large portion of your debt money that you owe to the IRS in back taxes? If you answered “yes” to both of these questions, you probably have a question of your own: Will bankruptcy help with my tax debt anyway?

Under the United States Bankruptcy code, not all debts can be discharged by filing for bankruptcy. Some debts, such as student loan obligations, will remain your responsibility even if your bankruptcy is successful in wiping out most of your other debt. Tax debt, in most cases, can be discharged, but very specific criteria apply.

Discharging Tax Debt in Chapter 7

For the purposes of this discussion, we will focus on Chapter 7 bankruptcy, sometimes called “straight bankruptcy.” Under Chapter 7, you, as the filer, agree to turn over your assets (with certain exceptions) to the bankruptcy trustee. The trustee will liquidate your assets and use the proceeds to pay off your debts. Remaining debts are discharged, presuming that they are eligible for discharge.

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Posted on in Chapter 7 Bankruptcy
Illinois Bankruptcy: Chapter 7

When your financial situation starts to spiral beyond your control, and your debts pile up faster than you can pay them down, you are left to decide if you are going to file for bankruptcy. What, which kind of bankruptcy is right for you - Chapter 7 or Chapter 13?

Chapter 13

If you want to keep your property, then your best option might be to file for Chapter 13 bankruptcy. You can create a payment schedule to catch up on your debt payments, and you should be able to keep your original mortgage for your home or business. You may also choose to file this chapter if your income is too high to file Chapter 7.

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How Do I Know if an Asset is Exempt from Liquidation in my Chapter 7 Bankruptcy Case?

Chapter 7 bankruptcy is often called “liquidation bankruptcy” because it involves the liquidation of the filer's nonexempt assets to satisfy his or her debts. Certain classes of assets are exempt from liquidation, which means that the filer's bankruptcy attorney cannot sell them to recover liquid cash to satisfy the filer's debts. Other assets are nonexempt, which means that they can be liquidated in a Chapter 7 case.

In short, exempt assets are assets that filers need to continue living safe, productive lives. Certain assets, like the filer's primary home, are clearly exempt from liquidation. Others, like certain retirement accounts, are not as easy to discern. Below are a few ways to determine whether an asset is exempt from liquidation or not. If you are ever not sure about an asset's exemption status, ask your bankruptcy lawyer.

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Is This Item Exempt from Chapter 7 Liquidation?

If you have filed for Chapter 7 bankruptcy, you know that you will need to have your nonexempt assets liquidated to come up with the money to repay your creditors. This is done under the supervision of your court-appointed trustee, whose job is to recover as much money from you as possible to pay off your creditors. In exchange for this liquidation, your debts are forgiven.

Liquidation means that any assets that are not deemed to be necessary for your day-to-day life may be sold. Sometimes, disputes can arise about whether a particular item may be exempted or not. This is why you need to work with an experienced bankruptcy lawyer who can protect your interests.

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Illinois Woman Permitted to Keep Rare Book of Mormon in Bankruptcy

When you file for Chapter 7 bankruptcy, part of the process is the liquidation of your nonexempt assets to come up with money to pay off your creditors. These assets are those that are not essential to your daily living or working needs. In some cases, disputes arise regarding whether an item should or should not be exempt from the liquidation process.

This came up fairly recently in a case from Illinois. Recently, the court ruled that a woman who had filed for Chapter 7 bankruptcy could keep her rare copy of the Book of Mormon. The book was published in 1830 and worth tens of thousands of dollars as a historical piece. She was permitted to keep it because under Illinois law, bibles and other religious texts are exempt from the items that may be sold to satisfy a filer's debt. This ruling came after her case's trustee requested permission from the court to sell the book, stating that she had other copies of the text available to use as worship aids. But the court found that the book could be exempt because of its personal value to the woman, who is a member of the Church of Jesus Christ of Latter-Day Saints.

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