Arizona

Tax Debt and Bankruptcy Blog

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By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • BANKRUPTCY WILL STOP THE IRS LEVY

    chess-thumb-375x374-60916BANKRUPTCY WILL STOP THE IRS LEVY

    The IRS likes to garnish paychecks and levy bank accounts and other property. This is the primary way that it pushes people into payment plans that haven’t already negotiated one or filed an offer in compromise. There are several ways to stop a levy or other collection action by the IRS (read this) but often the best way to stop it is to file a bankruptcy case.

    A bankruptcy filing creates an automatic stay. This means that the moment the bankruptcy is filed; creditors…including the IRS have to stop collection efforts. If a paycheck is being garnished, it has to stop. The Bankruptcy Code trumps the tax code and removes any IRS discretion in this area of the law. Specifically, Section 362(a) of the Bankruptcy code requires that the stay occur.

    Stopping IRS collection activity is just the beginning though of what the bankruptcy may do.

    The taxpayer may be able to:

    1. Stop future IRS lien filings
    2. Discharge the obligation to pay tax debt
    3. Stop the IRS from adding additional interest and penalty to the debt (Chapter 13 Bankruptcy)
    4. Create a payment plan on the non-dischargeable debt tax debt that may be far less than an IRS Installment Agreement would be (Chapter 13 Bankruptcy)
    5. Reduce or eliminate other debt, like credit card debt, debt related to repossession, personal loans etc.

    If you are having a problem negotiating an offer in compromise with the IRS, or if your IRS plan payment is too high, or if you have tax debt and other debt problems, bankruptcy may be the answer…not just to stop IRS collection activity but also to find a fresh start.