Overview of Personal Bankruptcy Effects
You may choose to file Chapter 7 bankruptcy, which is a legal request to have your consumer debts absolved. But some debts can't be included in any bankruptcy case, such as most student loans, taxes less than three years old, drunk driving-related lawsuits, child support, alimony, and court fines.
If you have significant personal assets, you'll usually forfeit them in Chapter 7. Business debts also can be a tricky area, leading many S corporation owners to pursue a Chapter 13 debt repayment plan.
In Chapter 13, you repay part of your debts in a court-supervised bankruptcy case. You keep most, if not all, personal assets. This reports on your personal credit for 7 years as opposed to 10 years with Chapter 7.
Personal assets you gain after Chapter 7 is finalized, including tax refunds, usually can't be touched by creditors or the U.S. Bankruptcy Court. However, if you pursue Chapter 13 the court's trustee may require you to pledge part or all of your next two or three tax refunds to the debt repayment plan. Completing this type of repayment arrangement can take up to five years, but this depends upon your personal income as well as debt load.
Declaring personal bankruptcy while running an S Corp is certainly possible, however, speak to your accountant or attorney before you make the decision to file bankruptcy if you own a business.