Cook the diced bacon in a large skillet over medium-high heat until cooked through. Remove bacon to a paper towel lined plate and set aside.
While the bacon is cooking, mix together the flour, garlic powder, onion powder, paprika, salt, pepper, and Italian seasoning in a shallow bowl or dish.
Pat the chicken thighs dry with paper towels and dredge the chicken on each side into the seasoned flour until coated. Shake off any excess flour and set the flour mixture aside for later.
Once the bacon is removed from the pan, add half of the butter to the pan and allow to melt.
When the butter is melted, add the flour coated chicken and cook for 4-5 minutes per side until golden brown.
Remove the chicken to a plate and set aside.
Add the remaining butter to the pan and allow it to melt.
Sprinkle one cup of the remaining seasoned flour to the pan and whisk for 1 minute until the butter and flour are well combined.
Gradually whisk in the chicken broth and milk until gravy is smooth.
Return the cooked chicken and bacon to the pan.
Bring the mixture to a boil then reduce the heat to low and simmer for 20 minutes, until chicken is cooked through.