How to Stop IRS Garnishments and Levies through Bankruptcy
Is IRS garnishing your wages or threatened to levy your bank accounts or other assets? Bankruptcy might be a solution to this problem.
It is important to note that you must file all of your required federal, state, and local tax returns. Even if you owe taxes, you must assemble all of your records, consult with your tax advisor and file your returns. Your failure to file tax returns may result in a higher tax liabilities, penalties and interest.
If you have filed your tax returns but do not have copies of them, you may obtain a tax transcript from the IRS.
Chapter 7 and IRS liens
Generally, Chapter 7 bankruptcy is not the best way to resolve a tax liability since most tax debts are not dischargeable in a Chapter 7 bankruptcy. Specifically, sales, excise and payroll taxes are generally non-dischargeable.
However, certain income tax obligations are dischargeable as long as said income tax obligation was 1) based on a return that was due at least 3 years ago; 2) you actually filed a return not less than 2 years ago; 3) the tax debt was assessed by the IRS at least 240 days ago; and 4) the tax liability was not incurred through fraud or willful tax evasion. Please keep in mind that this is a simplified discussion and that extensive tax analysis must be conducted to determine the dischargeability of tax debts.
The practical effect of filing a Chapter 7 petition when a tax debt is not dischargeable is that once the Chapter 7 proceeding is concluded, the tax debt, accrued interest and certain penalties will become immediately due again.
Chapter 13 and IRS liens
Since Chapter 13 bankruptcy provides for payment of tax obligations over a period of 3 to 5 years, you can provide for payment of non-dischargeable taxes and interest thereon. In a Chapter 13 bankruptcy, you may be able to pay a small percentage of the penalty portions of the tax obligation and obtain a discharge of the remainder of the penalty portion of the tax obligation. In addition, it may be possible to “cram down” the liens of the IRS to the actual value of all your property. Please note that filed tax liens, unless paid or otherwise resolved, will survive after bankruptcy so proper steps must be taken to release them.
Tax problems are serious issues. We are not qualified tax attorneys or tax advisers, and we do recommend that you contact your tax advisor, but we can help you use and apply bankruptcy to resolve your tax issues.
Contact Columbus, Ohio lawyer, Mina Nami Khorrami, for a free initial consultation to discuss your case in more detail.
The within statements are general in nature and this information is not intended as a substitute for legal advice regarding your specific case, nor is an attorney-client relationship established between Mina Nami Khorrami, LLC and any person reading this information. Mina Nami Khorrami is an experienced bankruptcy and debt attorney based in Columbus, Ohio.