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 liabilities. The remaining amount owed is discharged.
Chapter 11 for Individuals
To qualify for Chapter 11, you need to have too many liabilities to file for Chapter 13. As of 2017, if you have more than $394,725 in unsecured liabilities or more than $1,184,200 in secured liabilities, you don’t qualify for Chapter 13. Instead, you must file Chapter 11.
Chapter 11 bankruptcy is very complicated. The good news is that some taxes can be erased. However, it varies based on the type of tax and your unique situation. Generally, to leverage the bankruptcy laws, it is important that taxes owed does not continue to accumulate.
In most cases, you get more tax discharged under Chapter 13, than 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 taxes.
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 taxes.