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"Small Town Attention....To BIG City Problems."
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FSSK Legal Blog

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Pesky Uncle Sam: Tax Treatment in Chapter 11 Bankruptcy

Pesky Uncle Sam: Tax Treatment in Chapter 11 Bankruptcy

Uncle Sam, of the U.S. Treasury, is a pesky and persistent “family member” who inserts himself into every conceivable financial affair. Impossible to shake, his needs must be satisfied.  If not, he can make life extremely difficult.  Understanding tax treatment in Chapter 11 Bankruptcy is critical because of the stringent tax debt payback requirements imposed by Uncle Sam.

Why Is Tax Treatment Important in Chapter 11 Bankruptcy?

More often than not, persons (individuals, partnerships, and corporations) who are considering Chapter 11 bankruptcy relief have significant issues with Uncle Sam.  Tax obligations are typically the most tempting not to pay because neglecting to do so usually does not result in immediate shutdown of business operations, unlike non-payment of trade debt where creditors can disrupt or bring a screeching halt to business affairs. Those contemplating Chapter 11 must understand how tax debt is treated in the bankruptcy case because failing to account for this debt treatment could derail the entire reorganization effort before it even gets a solid footing on the track.

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Stripping Away Burdensome Mortgage Debt

Stripping Away Burdensome Mortgage Debt

Lien stripping is a process available to debtors in bankruptcy that can remove junior mortgage liens on residential property, freeing property from burdensome mortgages that exceed the value of the property.  After a lien strip, a homeowner is only obligated on the first mortgage, i.e. the mortgage having the most senior priority, which typically is the mortgage that was taken out first.  The junior mortgage debt is wiped out.  Lien stripping is a great option for those homeowners who want to remain in their home, whose first mortgage balance is not too much higher than the home value, and who can afford payments on the first mortgage.

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