In order to quickly stop a foreclosure or repossession, a great option is to file a Chapter 13 bankruptcy. When filing a chapter 13, the court looks at the debtor’s income less his living expenses to determine what disposable income remains. A debtor must be able to show an ability to pay ongoing living expenses and still have money available to pay a percentage to his creditors. The amount paid to unsecured creditors could be very small or even nothing at all, but in order to catch up a car or a house, a debtor must show he has enough income to pay for the house and the car while maintaining everyday living expenses.
Chapter 13 Bankruptcy for Business Owners
What happens if you own a business and derive your income from the business? A debtor must be able to demonstrate the ability to pay his debt whether by wages, business income, rental income, social security, VA disability, retirement funds, unemployment, child support or a variety of other sources. If the debtor operates a business at a loss, it presents a challenge for the debtor to then prove he has disposable income to fund a Chapter 13 plan. It is very important for tax purposes and ultimately for a chapter 13 bankruptcy to keep good books and records. There is no requirement that the records are computerized. A debtor should be able to easily determine his gross receipts and business expenses on a monthly basis. A chapter 13 case will not work if he does not do this.
Lastly, if you have a business, talk with a tax professional about operating at a loss each year and the potential risks you may face with the IRS. The IRS at some point may question the business and its expenses. IRS Regulations enumerate relevant factors when determining whether a business is for profit or would be considered a hobby. For additional information, visit the IRS website.
If you need help stopping a foreclosure or repossession or have questions regarding a tax liability that you cannot pay, call one of our Bond and Botes offices (located in Tennessee, Mississippi and Alabama) for a free consultation.