If you’re in tax debt, the last thing you want is the IRS to pursue collection efforts against you. Unfortunately, this agency is notorious for its persistence and aggressiveness when pursuing those who owe a debt. As such, you may wonder if bankruptcy can help stop this agency from placing levies on your property or garnishing your wages. The following blog explores what you should know about these matters and the importance of working with a Memphis, TN consumer bankruptcy lawyer to explore your legal options.
Does the Automatic Stay Apply to IRS Collection Efforts?
First and foremost, the automatic stay is granted to those who file for bankruptcy, as it allows a filer to receive relief from collection efforts. Once someone files for bankruptcy, their creditors are notified and must immediately cease all collection efforts against the party, including wage garnishment, lawsuits, and even phone calls. Some efforts, like unrelated criminal lawsuits against the filer, may continue during this process. The automatic stay will remain in place for the duration of your case unless a creditor files a motion with the court to lift the stay.
If you file for bankruptcy, it’s important to understand that the Internal Revenue Service (IRS) must adhere to the stay. As such, they cannot begin new tax debt collection, enforce judgments, create tax liens, repossess your property, or continue any existing judgments against you.
How Are Nondischargeable Tax Debts Handled in Memphis?
It’s important to understand what happens to debts during bankruptcy to prepare yourself once the stay is lifted. Generally, debts are either dischargeable, meaning they can be wiped out, or non-dischargeable, meaning you will still be liable for them once you’ve completed the bankruptcy process.
Tax debts can be discharged, but only under certain circumstances, including the following:
- The debt is at least three years old
- The debt is from income tax or gross receipts if you are filing as a business
- The returns were filed correctly and on time
- The assessment of the tax is at least 240 days old
If you choose to pursue a Chapter 7 filing, the debt will be handled during the liquidation of your assets. The trustee assigned to your case will liquidate your non-exempt property to repay creditors. The remained of your debt will be discharged at the closure of your case. If the debt cannot be discharged, the IRS will resume collection for the remaining amount. If you choose to file Chapter 13, you will pay the debt off during your three to five-year repayment plan. Like Chapter 7, if eligible, your IRS tax debt will be discharged at the closure of your case, or if it is nondischargeable, the collection will resume.
As you can see, navigating tax debts during bankruptcy can be incredibly difficult. As such, working with an experienced legal team is in your best interest during these difficult matters. At the Arnold Law Firm, we understand that bankruptcy is an overwhelming process. That is why we are committed to helping guide you through these matters so you can achieve the best possible outcome. Contact us today to learn how we can fight for you.
