If you are facing overwhelming tax debt, you may consider filing for bankruptcy for much-needed relief. It’s crucial to understand the implications of bankruptcy on your outstanding tax obligations and to seek guidance from an experienced Rockland County Estate Planning Attorney. Please continue reading as we explore whether or not bankruptcy will stop IRS collection efforts.

Does the Automatic Stay Apply to the IRS?

When you file for bankruptcy in New York, it triggers an automatic stay, which stops creditors, including the IRS, from starting or continuing collection efforts, like sending you letters, garnishing your wages, filing lawsuits, or filing liens against your property.

The stay remains in effect during the bankruptcy case. However, it can be lifted under certain circumstances. The court can lift the automatic stay if a creditor can demonstrate that it would experience irreparable damage if it could not continue to pursue collection measures against you. Once the bankruptcy case is resolved, the IRS will be free to resume all collection activity unless the tax debt has been discharged or paid in full.

It’s important to note that there are exceptions to the automatic stay. Post-petition tax liabilities, meaning taxes owed after the bankruptcy filing or certain actions related to criminal proceedings and family law matters, are typically exempt.

What Happens to Outstanding Tax Obligations During Bankruptcy?

Generally, debtors can discharge some IRS tax debt in bankruptcy. However, taxes must meet the following criteria before they can be forgiven:

  • The taxes are wage-related income or gross receipts
  • The income taxes were due at least three years before the bankruptcy filing date
  • The tax assessment is at least 240 days old before filing for bankruptcy
  • You filed the taxes correctly and on time, and you did not commit fraud or willfully try to evade paying your taxes

Depending on the chapter you file, repayment of eligible dischargeable tax debts will be managed through either the liquidation process under Chapter 7 bankruptcy or a court-ordered repayment plan under Chapter 13. Any non-dischargeable tax debt will remain your responsibility after your case has concluded and must be paid.

As you can see, navigating the complexities of tax debt can be a daunting experience. If you find yourself overwhelmed by tax debt, seeking professional guidance is crucial. The Laureterbach Law Firm can help you explore your options for debt relief. Our legal team will assess your financial situation, evaluate your eligibility for bankruptcy, and guide you through the entire process. We will work tirelessly to protect your rights and ensure that you receive the maximum benefit from bankruptcy protection. Connect with our firm today for more information.