Income Taxes and Chapter 13 Bankruptcy
An income tax Chapter 11 bankruptcy will allow a business to pay the Internal Revenue Service (IRS) the amount they can financially afford, possibly avoid some or all penalties, and stop interest from accruing on payments owed. If you owe the IRS taxes, the penalties and interest can accumulate rapidly making it nearly impossible to recover as a business owner. If you are considering filing a Chapter 11 bankruptcy, the following will explain how it will impact the income taxes you owe.
The taxes you owe to the IRS directly will not be discharged in a Chapter 11 bankruptcy. Therefore, if you owed $10,000 in taxes to the IRS prior to any penalties or interest, this amount would not be available to be discharged in a Chapter 13 bankruptcy. The repayment plan that you create with your attorney will have to include the amounts you owe to the IRS.
Interest and Penalties Owed
If you owe any accrued interest on the money owed to the IRS, these amounts will also be considered non-dischargeable in a Chapter 11 bankruptcy. However, immediately after filing a Chapter 13, the interest will effectively stop accruing immediately. Therefore, you will not have to pay any interest following the date you filed for Chapter 11 bankruptcy. The only exception to this rule is if the IRS recorded some sort of lien on this specific tax prior to filing a Chapter 11 bankruptcy. However, if this is your case, then you should consider visiting with an experienced attorney to help you with your options as this will make your bankruptcy case more complicated.
Penalties are not required to be paid if a company files a Chapter 11 bankruptcy case.
This means that if you owed $10,000 in back taxes to the IRS, with interest at $1,200 totaling $11,200, you would be able to pay off your IRS debt in 3 years with only $385 a month. While this will not take care of your other debts, attorneys fees or trustee fees, it is is a real-life calculation of how a Chapter 13 bankruptcy may be able to help you financially. Taking into account the other debt you owe, you will be able to make some sort of rough estimate of the amounts you will owe and what your payment may be over 3 years or longer. However, a true understanding of the benefits of Chapter 11 bankruptcy will be best discussed with an experienced attorney who can examine your specific financial situation to help you make a determination regarding your best steps.
Reach Out to Us Today for Help
Understanding how a Chapter 11 bankruptcy affects your requirement to pay back taxes, penalties and interest can be a challenging and complex legal endeavor. Our West Palm Beach bankruptcy attorneys at Kelley, Fulton & Kaplan can help you understand how a Chapter 11 bankruptcy would impact your finances and how you could realistically pay back your IRS taxes. Contact us today at 561-264-6850 for a free consultation.