If you are considering filing bankruptcy for the first time, it may surprise you to learn the IRS is included as a creditor subject to an automatic stay. That means they cannot begin or continue collection activities for the duration of your bankruptcy case. Collection activities may include wage garnishments, sending letters, or liens filed against property you own.
In some instances, a creditor may request to have an automatic stay lifted. However, the creditor must have a valid reason for such a request and the court is not obligated to grant the request.
A bankruptcy case does not necessarily protect you from the IRS continuing collection activities permanently after discharge. When your bankruptcy case has concluded, the IRS can once again pursue collection of debt, unless the debt has been discharged or fully repaid.
Dischargeable Tax Debts
Not all tax debt is dischargeable when you file for bankruptcy. There are criteria that must be met before your tax is subject to discharge, which may include:
- Taxes that were due at least three years prior to filing bankruptcy, if a tax lien has not been filed
- Tax returns that were filed at least two years before a bankruptcy case
- No fraud or willful attempt to evade taxes
In the case of filing tax returns for at least two years before you file a bankruptcy case, there are further conditions that will impact on whether the taxes are dischargeable. Failure to file, late filing, or the IRS filing a substitute for return may result in failure of those taxes to qualify.
The IRS tax assessment process also comes into play. The process of entering tax liability must have taken place at least 240 days prior to filing for bankruptcy. You may receive an extension to this period if an offer of compromise existed, you had filed a previous bankruptcy case, or an audit delayed assessment of taxes.
Chapter 7, 13 Bankruptcy
An automatic stay is the main impact of a Chapter 7 bankruptcy on IRS debts that are non-dischargeable. The bankruptcy case is typically closed once discharges are issued; except where there is a need for the court trustee to sell non-exempt property. The IRS is then able to once again pursue any debts owed through collection activities.
A Chapter 13 bankruptcy may allow you to reorganize debts, including non-dischargeable IRS debt. This is a good option if you have both dischargeable and non-dischargeable IRS debt and want to find a better way to manage.
For more in depth advice, contact H. Lehman Franklin, P.C. today for a full consultation on your debts and circumstances. We provide expert advice to individuals and businesses. Call today and discuss the details of your case with a qualified legal professional in Georgia. We have the experience and tools you need to make positive changes towards financial stability.