Will Bankruptcy Stop the IRS From Collecting Tax Debts?

The automatic stay stops pre-petition IRS tax debt collection during your bankruptcy.

By , Attorney · University of the Pacific McGeorge School of Law

Filing for bankruptcy will stop the IRS from collecting from you, but it might not be for long. Even so, you can file bankruptcy on a tax debt, and if it's old, the bankruptcy court might even wipe it out. But bankruptcy and tax debt can be a tricky area, so you'll want to understand the following:

  • how the automatic stay affects tax debt collection
  • what happens to tax debt in bankruptcy, and
  • how long the IRS must wait to collect.

Also, check out our quick ten-question bankruptcy quiz—it can spot potential bankruptcy issues fast.

The IRS Will Stop Collecting Tax Debt During Bankruptcy

Filing for bankruptcy stops most creditors from collecting from you, including the Internal Revenue Service ("IRS"). While the "automatic stay" is in place, the IRS cannot send you collection notices, garnish your wages, or levy your bank accounts.

However, the IRS might hold your refund until the automatic stay expires and use your refund to pay back a child support debt because the automatic stay doesn't stop child support collections.

How the Automatic Stay Stops Bankruptcy Tax Debt Collection

When you file for bankruptcy, an "automatic stay" order stops most legal proceedings and prohibits your creditors from continuing debt collection efforts. Creditors can't sue, garnish, bill, phone, or otherwise attempt to collect a debt. Filing for bankruptcy will even stop collection lawsuits, repossessions, and foreclosures.

But the automatic stay has limits to prevent filers from misusing the bankruptcy process:

  • The stay will expire 30 days after filing if you filed another bankruptcy in the previous year and voluntarily dismissed that case.
  • The court won't put the automatic stay in place if you filed two or more bankruptcies in the previous year and voluntarily dismissed them.

In both situations, the court will allow for automatic stay protection when a filer can prove a good faith intent when filing bankruptcy cases. The automatic stay expires when the court enters your bankruptcy discharge or closes your case.

Does Bankruptcy Clear Tax Debt?

Most IRS tax debt can't be discharged in bankruptcy. But that's not to say it's not possible. You can file bankruptcy on tax debt and wipe it out in some cases. Specifically, if you incurred the tax debt over three years ago, you might be able to wipe it out if you meet other requirements.

Because the rules differ between states and jurisdictions, explaining specific requirements is beyond this article's scope. For instance, in some areas, IRS tax debt isn't dischargeable unless you file a timely return, which rarely happens when the filer owes taxes. You'll also want to know how an IRS lien on your property comes into play.

The best way to determine whether you can get out from under a tax debt is by consulting with a local bankruptcy attorney.

When Bankruptcy Won't Protect You From the IRS and Tax Debt Collection

The IRS will be able to collect any tax debt you incur after filing for bankruptcy. Why? Because bankruptcy erases or "discharges" qualifying debt obtained before you filed for bankruptcy—not "post-petition debt" acquired after filing. So use your bankruptcy filing date as the starting point, not when your case ends.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

You'll find fillable, downloadable bankruptcy forms on the U.S. Courts bankruptcy form webpage.

Chapter 7 and 13 Bankruptcy Form List

Bankruptcy Document Checklist

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How to Keep Your Tax Refund After Filing for Bankruptcy

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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