Tax Relief: Chapter 11 Bankruptcy
Posted by LWM Team on Tue, Jul 27, 2010
Taxes and Chapter 11 Bankruptcy
Chapter 11 provides a refuge for businesses from creditors as they try to show a profit and appropriately manage debt. Private individuals may file for Chapter 11 but it is extremely rare.
Chapter 11 is complicated and a bankruptcy attorney is necessary but costly. Their fees start at $10,000. It may drag on for a number of years and the business in question may either fail or improve.
In the event of a Chapter 11 interest keeps on accruing but there is an automatic stay on IRS collections.
Taxes and Chapter 12 Bankruptcy
Debts caused by a family farm are assisted by a Chapter 12. It is akin to a Chapter 13.
State Income Taxes and Bankruptcy
Although only taxes are discussed in the Bankruptcy Code there are unique concerns about state taxes and bankruptcy. There are states like California that don’t send a final notice for tax assessment. Instead, they send interim notices.
A large number of states want you to file a return that is amended subsequent to an IRS review founded on audit or inspection. The three year regulation starts from the time the amended return was due. The two year regulation starts from time of filing.
Chapters 7 and 13 must be settled in full as state sales taxes are not normally dischargeable. In a small number of states such as Illinois, Hawaii and California if sales taxes are not paid it means they are eligible for discharge in the same way income taxes are. However, they must be in line with the three year, two year and 240 days regulations.