BACK TO BUSINESS BANKRUPTCY What’s the difference between chapter 7 and chapter 11 bankruptcy?
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Does a business bankruptcy cause a red flag on a later return filed with the IRS?
When a person or business files for bankruptcy, there’s no evidence that it causes the IRS to look at their tax returns more carefully or examine them for fraud. While the question is often asked by those filing for bankruptcy, and it is, of course, possible that a person who filed may happen to get audited that year, there is no legitimate connection between the two. There are also no rules in the IRS code that would sensibly trigger such a connection.
→ Read MoreCan a bankruptcy trustee sue general partners for outstanding liabilities?
Federal business bankruptcy law states that the general partners of a business partnership may be sued by the trustee of the bankruptcy court if the partnership can’t pay its debts during a bankruptcy filing. However, each individual partner may only be sued personally if he or she has signed a personal guarantee of partnership debts.
→ Read MoreWhere can I get information about the bankruptcy status of a particular business?
There are times when you may need to know whether a company is in bankruptcy. Because both individual and corporate bankruptcy are considered public information under federal law, there are several ways to find out if a company has filed for bankruptcy. Many times corporate bankruptcies are reported in the news or on investment wires.
→ Read MoreAre all debts discharged in a business bankruptcy? If not, which ones are not?
The specific debts that may be be discharged during a business bankruptcy may depend on the type of bankruptcy that is filed. In many cases, no debts are discharged during the early stages of a business bankruptcy because the business declares Chapter 11 bankruptcy. In the event of a Chapter 7 bankruptcy filing, some debts may be discharged only after the assets of the business have been sold to repay creditors.
→ Read MoreIs a business owner personally liable for unremitted payroll taxes in a bankruptcy filing?
In most business tax structures, after filing for bankruptcy protection, the company owner is not personally liable for any debts of the company itself, including payroll tax debts. However, if a situation arises in which payments to the IRS were deliberately withheld or otherwise fraudulently handled, the company owner and/or the person in the company who handles the money can be held personally responsible for the debt.
→ Read MoreWhat happens to my company if I file for bankruptcy?
A company going bankrupt is not just a source of anxiety for its leaders. Investors, creditors, and employees all share the same anxiety and stress. When a company can no longer pay its bills or even remain fully operational, it will file a Chapter 7 or Chapter 11 bankruptcy. What happens after filing for bankruptcy depends on which type the company has opted for.
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