If you’re struggling with tax debt, you may be asking yourself, “Can bankruptcy stop IRS levy?” Well, there isn’t a straightforward answer to that question. It all depends on the type of tax debt you have and the stage of collection the IRS is in.
If you owe back taxes, the IRS may try to collect by placing a levy on your assets. As a result, they can seize your property, such as your house, car, or bank account. A tax levy is devastating, leaving you without the means to pay for basic necessities or keep a roof over your head.
Thankfully, there are ways to lessen the effects of tax debt collection. With that said, read on to learn more about tax debt and bankruptcy.
Can Bankruptcy Stop IRS Levy?
Filing for bankruptcy can provide relief from an IRS levy. When you file for bankruptcy, an automatic stay goes into effect. This means that creditors, including the IRS, are prohibited from taking any collection action against you. The automatic stay offers a much-needed reprieve from creditors and gives you time to reorganize your finances.
However, the automatic stay is not permanent. The IRS can request that the bankruptcy court lift the stay, so they can continue with their levy. If this happens, you will need to work with the IRS to negotiate a payment plan or offer in compromise.
The automatic stay usually lasts until your bankruptcy case is over. Unfortunately, the court can lift the automatic stay in certain circumstances. For example, if you file for bankruptcy, but then continue to rack up tax debt, the court may lift the automatic stay so that the IRS can levy your wages or bank account.
Also, the automatic stay has limits to prevent files from misusing this process. The court won’t put it in place if you filed two or more bankruptcies during the previous year and dismissed them. Plus, the stay will expire 30 days after filing if you filed a different bankruptcy the prior year and willingly dismissed the case.
If you’re facing an IRS levy, bankruptcy may be able to help. But it’s best to speak with a tax specialist to understand your options and get information about the type of tax debt that can be discharged in bankruptcy.
The Type of Bankruptcy You Choose Affects Tax Debt
If you file for bankruptcy, it can stop an IRS levy on your wages or bank account. But keep in mind that the type of bankruptcy you file will affect how your tax debt is treated.
Chapter 7 bankruptcy will discharge most of your debts, including any unpaid taxes. However, if you have a significant amount of tax debt, the IRS may file a motion to have your tax debt declared non-dischargeable. If this happens, you will still be responsible for paying your taxes, even after you file for bankruptcy.
Chapter 13 bankruptcy allows you to repay your taxes over time, but the IRS can still garnish your wages if you fall behind on your payments.
If you are facing an IRS levy, you should speak to a tax resolution service to help you.
Can Bankruptcy Stop Existing Liens?
Unfortunately, filing for bankruptcy won’t remove the liens that the IRS placed on your property. Thankfully, there are some circumstances in which bankruptcy may shield your accounts from an IRS levy.
A lien is a legal claim that the IRS has on your property. This means that if you try to sell your property, the IRS will be first in line to receive payment. The IRS can place a lien on your home, car, or other assets.
If you’re facing an IRS levy, the IRS has already placed a lien on your property and is now taking steps to collect on that debt. The IRS may take your bank account balance, sell your car, or garnish your wages.
In some cases, you may be able to use bankruptcy to remove an IRS lien. This is known as a “lien avoidance.” To do this, you must file for Chapter 7 bankruptcy and receive a discharge. This discharge wipes out your debt, including the debt that the lien is attached to.
When facing an IRS levy, you may also be able to use bankruptcy to stop the levy. This is known as a “levy stay.” To get a levy stay, you must file for Chapter 7 or Chapter 13 bankruptcy and create a repayment plan. The levy stay will last as long as you’re making payments under the repayment plan.
If you’re struggling with IRS debt, bankruptcy may be able to provide some relief. However, it’s important to understand that bankruptcy is not a magic solution. You’ll still need to work with the IRS to resolve your debt.
But if you’re struggling to make ends meet, bankruptcy may be able to give you the fresh start you need.
Understanding Tax Debt Collection
So, can bankruptcy stop the IRS levy? In some cases, yes. While bankruptcy can help, you shouldn’t use it as an escape from your problems. There’s no real way around your tax obligations, especially if you owe a lot of money to the IRS.
If you’re facing tax debt collection, and you don’t know what to do, give us a call. At Fiscal Solutions, we have the knowledge and experience to get you through a complicated situation. If you’re ready to resolve your tax debts, contact us for a consultation. We’d be happy to help!