Can Bankruptcy Halt IRS Tax Levies?

 Posted on December 18, 2023 in 341 Meeting

Facing IRS threats to seize assets or garnish wages over unpaid taxes strikes fear for many taxpayers. While most creditors halt collection efforts after bankruptcy filings, some wonder whether the IRS plays by the same rules. A Texas bankruptcy lawyer can help you determine how automatic stay impacts IRS collection tactics.

Halting IRS Property Seizures

Upon filing either Chapter 7 or Chapter 13 bankruptcy, an automatic stay immediately pauses most collection activities against debtors. This includes preventing the IRS from confiscating and liquidating property to satisfy alleged tax debts. As your bankruptcy case proceeds, any prior notices or intentions to levy property convert to temporary restraints. The stay protection also requires the IRS to halt auction sales on properties already seized pre-bankruptcy. It must return anything improperly taken after your filing date. This gives you critical breathing room to negotiate IRS repayment terms through bankruptcy.

Pausing Wage Garnishments

Similarly, the IRS normally cannot garnish wages to force taxpayers to pay tax obligations after a bankruptcy filing. Whether attempting to seize earnings directly or ordering employers to submit portions of paychecks, these actions functionally try to collect a monetary debt. Since bankruptcy pauses monetary debt collection, mandated wage set-asides generally stop upon filing a petition. This helps preserve income stability so filers can make plan payments to all creditors, including tax obligations. Without this protection, the IRS could single-handedly undermine bankruptcy effectiveness by intercepting too much income needed to cooperate with proceedings.

Cautions Around Payroll Taxes

However, some particular IRS garnishment powers survive bankruptcy’s automatic stay. The most common exemptions surround payroll taxes withheld by employers and then remitted to the IRS on employees’ behalf. Because the IRS views these holdings as property already belonging to the government rather than debtors, they may legally continue payroll tax garnishments after a bankruptcy filing. For all other tax collection efforts tied to personally owed tax debts, bankruptcy filings successfully halt IRS property seizures, wage garnishments, and asset liquidation threats. The stay protection furnishes critical financial stability while negotiating long-term tax repayment plans.

Contact a San Antonio, TX Bankruptcy Attorney

Relying on legal advice ensures maximizing protections from IRS collection harassment through the Bankruptcy Code’s automatic stay provision. A Kerrville, TX bankruptcy lawyer can help you determine the best option for your situation. Call Law Offices of Chance M. McGhee at 210-342-3400 for a free consultation to see what options you may have.