FAQ – Bankruptcy and Tax

Bankruptcy and Tax

Maybe. Certain taxes such as trust fund taxes are never eliminated in bankruptcy.

Personal Income taxes are generally dischargeable if the tax return was due more than 3 years ago, it was filed more than 2 years ago, the tax was assessed more than 240 days ago and there was no fraud or evasion with regard to the tax liability.


The tax rules in bankruptcy are most favorable to those who have filed their returns and have had taxes assessed. We encourage all of our clients to file their returns. We can show you how to obtain the information to file, and discuss with you how to eliminate penalties and pay the tax if you can’t reach an acceptable payment arrangement with the IRS.


Yes. The IRS can attach a federal tax lien against your property when you neglect or fail to pay a tax debt. You will receive notice of a lien prior to attachment.. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in, including some business assets.


Yes. Once a bankruptcy is filed, notice is provided to the IRS and they immediately discontinue garnishment. Continued garnishment is a violation of 11 USC 362, the automatic stay provision of the bankruptcy code.


Yes. The automatic stay prohibits tax agencies from continuing the collection of taxes. This means they must release tax levies, distraint warrants, and stop the seizure of any of your assets. If you have equity in assets and the IRS has filed a lien, Chapter 13 bankruptcy can be utilized to satisfy the IRS lien through structured payments or take the time you need to sell the property at a fair price.


There are a number of non-bankruptcy options for solving tax problems. These include setting up a payment plan with the IRS or completing an offer in compromise (“OIC”). An OIC is an offer to the IRS to settle out your tax debt. An OIC may be a great option if you only have tax debt or are concerned about credit. Bankruptcy is a better option if you have a number of tax years that can be eliminated or if the IRS has rejected a proposed offer in compromise.


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