Bankruptcy and the IR
Bankruptcy may temporarily delay collection activities by the IRS. However, some types of tax debt are not dischargeable in bankruptcy, so the IRS may be able to resume their collection efforts once the automatic stay is lifted.If you are considering filing for bankruptcy primarily due to delinquent tax debt, you should first consult with a tax resolution attorney to weigh your options.
The Automatic Stay in Bankruptcy
The automatic stay in bankruptcy immediately stops all collection activities by your creditors, including the IRS. Once you file for bankruptcy, creditors can’t send you collection notices in the mail or attempt to seize your assets. If they try to collect during this time, they are breaking the law.
So should you file for bankruptcy to stop the IRS from seizing your bank account funds or garnishing your wages? Not necessarily. There are other, less drastic ways to stop or delay IRS collection activities. These options may be preferable to bankruptcy, which has significant and long-term implications for your financial situation.
Debts That Survive the Bankruptcy
Some debts can survive the bankruptcy process. Once the automatic stay is lifted, your creditors can once again try to collect from you using any methods permitted by law.
Tax debt can survive bankruptcy in many cases. The dischargeability of tax debt depends on several factors, including how old the debt is and which type of bankruptcy you file. If the tax debt is non-dischargeable, the IRS can resume collection activities after the automatic stay is lifted.
The automatic stay also only applies to debt incurred before you filed for bankruptcy. If you accumulate more tax debt after the bankruptcy is filed, you won’t be protected by the automatic stay.
Alternatives to Bankruptcy
Before you file for bankruptcy because of IRS tax debt, you should consider some of the following alternatives:
- IRS installment agreement
- Offer in Compromise
- Innocent spouse relief
- Penalty abatement
- Request currently not collectible status
There are also many other tax resolution options available. You can get more time to pay your tax debt or, in some cases, have some of your tax debt forgiven. This could allow you to avoid the necessity of filing for bankruptcy.
Contact an Attorney
Get free tax advice from a Michigan tax lawyer by calling Ayar Law at 248-262-3400 today.