Last year, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and with that legislation came some changes in the way bankruptcy debtors are taxed.New Internal Revenue Service guidelines have been issued to help explain provisions of the act that affect individual taxpayers filing Chapter 11 bankruptcies. The guidelines are issued in IRS Notice 2006-83 and relate to all Chapter 11 bankruptcies filed on or after Oct. 17, 2005.

A Chapter 11 bankruptcy provides the debtor with the opportunity to reorganize and continue to conduct business, while keeping creditors at bay. Previously more popular with corporate taxpayers, Chapter 11 now has wider appeal for individuals, due to the tightening of rules surrounding the more common Chapter 13 bankruptcy.

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