by Steven A. Leahy

I meet with good people every day. Many of these people are facing financial troubles for the first time in their lives; financial troubles they never thought could happen to them. I hear the same statement over and over: “I’m not like your normal client. I have always paid my bills and taxes on time, always been honest with my creditors. I never imagined I would be sitting here speaking with an attorney.”

What they don’t know is: they are my “normal client.” I don’t help people cheat the system. I help honest people with financial recovery. Sometimes, the recovery involves bankruptcy. My clients are often reluctant to even discuss bankruptcy as an option. After all, these are their obligations and they don’t want to cheat anyone.

I have a bust of Abraham Lincoln in my office – this is where I point to the bust and describe “Honest Abe” and financial recovery. Honest Abe recognized that there are two kinds of financial obligations – legal obligations and moral obligations. Bankruptcy can protect you from some legal obligations. Bankruptcy cannot protect you from your moral obligations.

In 1832, with partner William F. Berry, Lincoln purchased a general store in New Salem, Illinois. The store faced stiff competition, and closed in 1833, leaving a debt Lincoln and his partner were unable to pay. Soon after the shop closed, Mr. Berry passed away. Lincoln declared bankruptcy to obtain protection from his legal obligations – and surrendered some possessions as a result. His possessions were not enough to pay off the debt.

Lincoln, however, felt a moral obligation to pay off his debt, and the debt of his former partner, even though he wasn’t legally obligated to do so. It took Lincoln some years to pay off the debt. But, by all accounts, the debts were paid.

Lincoln’s experience translates well to the lives of my honest clients. They are facing legal consequences from debt: IRS levies, court actions, judgment garnishments, etc. Should they leave themselves and their families unprotected, the legal consequences will mount and cause additional hardships, making it impossible to recover. Instead, bankruptcy can offer legal protection and foster financial recovery. Once financial recovery takes hold, my clients are in a better position to meet their moral obligations.

I don’t think every debt carries an equal moral obligation for repayment. For example, if I have a pay-day loan at 500% interest, and I have already paid the principle many times over, I may not feel a moral obligation to make additional payments after receiving legal protection. But I may.

If, however, I have a debt to an organization that helped me when I really needed it, and that debt has since been discharged in bankruptcy, I may feel a moral obligation to repay that debt, even though I don’t have a legal obligation to do so. Bankruptcy does not prevent me from paying a discharged debt – it simply protects me from creditors’ legal actions to collect.

To quote the United States Supreme Court “a central purpose of the [Bankruptcy] Code is to provide a procedure by which [an honest but unfortunate person] can reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.’”

Good moral character is defined by correct actions, even when not legally compelled to act at all. Abraham Lincoln’s actions after bankruptcy are reason enough for his nick name “Honest Abe.”

If you need legal protection from your financial obligations, give me a call. We can discuss if bankruptcy, or some other option, is right for you – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

1. Ethan Trex, Seven famous people who survived bankruptcy, CNN.com/living (November 19, 2008, 12:58 p.m.) http://www.cnn.com/2008/LIVING/personal/11/19/mf.successful.people.survived.bankruptcy/

2. The Glurge of Springfield, Snopes.com (February 11, 2009), http://www.snopes.com/glurge/lincoln.asp

3. Grogan v. Garner, 498 U.S. 279, 286 (U.S. 1991)

Chicago – Discharge Taxes in Bankruptcy

What You Need to Know about Tax Bankruptcy in Chicago

Since bankruptcy can have a long-term negative impact on your financial life, it might be a big mistake to seek bankruptcy protection as a tax-relief option…if in the end it doesn’t relieve the tax pressure that you were seeking
to relieve in the first place.

In order to discharge taxes in bankruptcy it must meet these criteria:

1. The tax debt must be related to a return that was due at least 3 years prior to the taxpayer declaring bankruptcy

2. The tax debt must be related to a tax return that was filed at least 2 years before the taxpayer files bankruptcy

I know that the above 2 conditions are a bit confusing. Let’s see if I can clear it up a bit:

For example – if you file bankruptcy in 2007, the tax debt that you are trying to eliminate should be from a return
due in 2004 or before (meeting the requirement of #1).

If you wish to eliminate the debt due in 2004, you must have filed the return at least by 2005, which would meet the requirement in #2.

In other words, if you filed the taxes due in 2004 returns late (say in 2006), you would not be able to eliminate the debt in bankruptcy in 2007, since 2 years had not yet passed since the return had been filed.

Think that’s complicated?

That’s only the beginning. There are many complicated rules when it comes to getting your tax debt taken care of in a bankruptcy. If you are in trouble with the IRS or have received notices that you owe taxes, we can help. Call Opem Tax Resolution – The Law Office of Steven A. Leahy, PC (312) 664-6649. Call Now to schedule your FREE 1 hour Consultation!