Bankruptcy is a last resort for taxpayers to get out of debts. For individuals, the most common type of bankruptcy is a Chapter 13. This section of the bankruptcy law allows individuals and small business owners in financial difficulty to repay their creditors. Chapter 13 bankruptcy is only available to wage earners, the self-employed and sole proprietor businesses.
Tax obligations while filing Chapter 13 bankruptcy:
Other types of bankruptcy
Partnerships and corporations file bankruptcy under Chapter 7 or Chapter 11 of the bankruptcy code. Individuals may also file under Chapter 7 or Chapter 11. Other types of bankruptcy include Chapters 9, 12 and 15. Cases under these chapters of the bankruptcy code involve municipalities, family farmers and fisherman, and international cases.
IRS' Declaring Bankruptcy webpage
Publication 908, Bankruptcy Tax Guide
Publication 5082, What You Should Know about Chapter 13 Bankruptcy and Delinquent Returns.
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Mia Verc, CPA; Janice Papais, CPA
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