Chapter 11 Bankruptcy and Taxes: Requirements & Details
Chapter 11 bankruptcy is primarily for corporations, but some individuals can also file. Some individuals may have a business that is not a corporation as well. In this type of bankruptcy, you reorganize your finances and pay off some of your debt. The remaining debt is discharged.
Chapter 11 for Individuals
To qualify for Chapter 11, you need to have too much debt to file for Chapter 13. As of 2017, if you have more than $394,725 in unsecured debt or more than $1,184,200 in secured debt, you don’t qualify for Chapter 13. Instead, you must file Chapter 11.
Dischargeable Tax Debts
Chapter 11 bankruptcy is very complicated. The good news is that some tax debts can be erased. However, it varies based on the type of tax debt and your unique situation. Generally, to leverage the bankruptcy laws, it is important that tax debt does not continue to accumulate.
In most cases, you get more tax debt discharged under Chapter 13, than under under 11. If there is any way to qualify for that instead, you may want to check into it.
Before approving your repayment plan, the bankruptcy courts look closely at your current finances. They also take into account taxes that you are likely to owe in the near future. Your plan will not be approved unless the courts believe that you can keep up with your current taxes.
That includes income taxes, but if you own a business, it also includes payroll taxes and excise taxes. If you qualify for any tax refunds, the IRS will automatically apply those amounts to your outstanding tax debts.
A Chapter 11 bankruptcy can be ideal in some cases, but it’s important to remember that bankruptcy should only be used as a last resort. If you are using bankruptcy to try to eliminate old taxes only, you may want to look into other options for paying off your tax debt. Call us today or request a consultation to talk about your situation.