Failing to pay taxes can be a stressful experience, especially when the IRS begins taking steps to collect the debt. If you are facing mounting tax liabilities and considering filing for bankruptcy, you may be wondering if doing so will stop IRS collection efforts. The relationship between bankruptcy and IRS debt can be complex, so understanding your rights and options is crucial. The automatic stay can protect you, but it’s important to secure skilled legal assistance when navigating the bankruptcy process. Continue reading and consult with a knowledgeable Bergen County bankruptcy lawyer to schedule your free consultation today.
What is the IRS?
The IRS (Internal Revenue Service) is a United States federal government agency that is responsible for administering and enforcing federal tax laws. The IRS assesses and collects federal taxes, processes returns and refunds, provides assistance to taxpayers, and enforces tax laws.
When an individual or business fails to pay their taxes or the correct amount, the IRS can take measures to ensure compliance. These measures are known as enforcement actions. The IRS will first send notices and bills to inform you of your failure to pay and the amount you owe, including any penalties or interest accrued. If you ignore these instructions, the IRS could proceed with collection efforts, including:
- Liens against property
- Levies/seizure of money or assets
- Wage garnishment
- Tax refund offsets
What is an Automatic Stay?
Under federal bankruptcy law, filing a petition for bankruptcy creates an automatic stay that generally stops collection actions against the debtor. An automatic stay is an injunction that immediately stops creditors from harassing phone calls, filing lawsuits, garnishing wages, foreclosing on property, and more. It provides the debtor with some breathing room, giving them time to reorganize their finances.
Although the stay begins automatically when the bankruptcy petition is filed, it’s important to note that it does not apply to certain obligations like child support, for example.
Does Bankruptcy Stop IRS Collection Efforts?
Yes, the IRS is generally impacted by the automatic stay, meaning that the agency will be temporarily stopped from engaging in collection efforts. This means the IRS must halt actions such as tax levies, property seizures, and wage garnishments upon the bankruptcy filing.
However, the automatic stay does not automatically erase the tax debt. Whether or not taxes are discharged depends on the type, timing, filing history, and compliance. Many people still owe the IRS after bankruptcy. Certain actions can also continue, such as audits or issuing tax assessment notices.
The automatic stay could also potentially be lifted if the IRS convinces the court that its interests in the assets outweigh your need for protection. The extent of this protection also depends on whether you file Chapter 7 or Chapter 13.
Bankruptcy can be complex and even more so when the IRS is involved. Reach out to an experienced attorney for more information and legal advice today.