Bankruptcy for Tax Relief Lawyer: Stop Irs Collections and Discharge Tax Debt

The automatic stay forces the IRS to immediately stop the deduction of funds from your paycheck and prevents them from freezing your bank accounts. This restoration of cash flow is vital for maintaining daily operations or personal living expenses during the litigation process. Any federal agent who knowingly violates this stay can be held in contempt of court, providing you with a legal counter-attack against aggressive collection officers.

If the IRS has issued a notice of intent to seize your primary residence or commercial real estate, the automatic stay halts the process in its tracks. Unlike negotiated settlements with the IRS which can take months to finalize, the stay offers instantaneous protection. This prevents the irreversible loss of equity that occurs during a government auction where assets are typically sold for a fraction of their market value.

The injunction also stops all pending litigation in the US Tax Court or federal district courts regarding your tax liability. This allows for the consolidation of all financial disputes into a single forum, the bankruptcy court, where the judge has the authority to resolve your tax debts as part of a comprehensive financial restructuring. This centralization prevents the exhaustion of resources required to fight the IRS on multiple fronts simultaneously.

The tax debt must be related to a return that was originally due at least three years before the bankruptcy filing date, including all valid extensions. If you file even one day early, the entire tax year’s liability survives the bankruptcy and remains a permanent obligation. This rule requires a precise calculation of the original filing deadlines and any tolling events that may have paused the three year clock.

If the tax return was filed late, it must have been filed at least 두 years before the bankruptcy petition. This rule is designed to prevent taxpayers from filing a decade of back taxes on Monday and filing for bankruptcy on Tuesday. Furthermore, if the IRS filed a "Substitute for Return" (SFR) on your behalf, many courts hold that the debt can never be discharged because a government-generated return does not qualify as a return filed by the taxpayer.

The tax must have been assessed by the IRS at least 240 days before you file for bankruptcy. This frequently occurs after an audit or a self-correction that results in a new tax assessment. If the IRS is currently auditing your returns, the 240 day clock may not even have started yet. We analyze the specific assessment dates on your IRS transcripts to prevent a premature filing that would leave the most significant portions of your debt intact.

In a Chapter 7 case, the goal is the total discharge of all qualifying tax debt, leaving the taxpayer with a clean slate. This is the most efficient path for those who meet the means test and do not have significant non-exempt assets that a trustee could seize. Once the discharge order is signed, the IRS is permanently barred from ever attempting to collect the discharged tax years, effectively ending the federal nightmare.

Taxes that are too recent to be discharged in Chapter 7 must be paid in full through a Chapter 13 plan. The primary advantage here is that the Chapter 13 plan stops the 25 percent per year interest and penalty accrual that typically makes IRS debt impossible to pay off. By restructuring the debt over sixty months, you can satisfy your obligations using pre-tax income while protecting your home and business from seizure.

If the IRS has filed a Notice of Federal Tax Lien, the debt becomes "secured," meaning it must be treated differently in the bankruptcy plan. Chapter 13 allows you to "cram down" or modify the treatment of these liens based on the actual value of your assets. This prevents the IRS from claiming more equity than actually exists, allowing you to settle the secured portion of the debt for cents on the dollar in certain circumstances.

The IRS aggressively pursues the 100 percent penalty against "responsible persons" who failed to pay over withheld income and FICA taxes. Bankruptcy does not stop this personal assessment. If you are an officer or director of a failing company, your bankruptcy strategy must include a plan to address these specific liabilities separately to prevent the IRS from targeting your personal bank accounts after the corporate bankruptcy concludes.

If the IRS can prove that a tax return was fraudulent or that the taxpayer engaged in a "willful attempt to evade or defeat" the tax, the debt can never be discharged in bankruptcy. This includes hiding assets, using aliases or maintaining offshore accounts to avoid detection. In these cases, the IRS will file an adversary proceeding within the bankruptcy court to challenge your right to a discharge, a high-stakes litigation matter that requires a robust defensive response.

Similar to payroll taxes, sales taxes collected from customers are trust fund taxes that survive bankruptcy. Additionally, any fines or penalties related to criminal activity or statutory violations are generally non-dischargeable. We identify these "toxic" liabilities early in the process to ensure you have a realistic expectation of what bankruptcy for tax relief can and cannot accomplish for your specific financial profile.

In many states, your primary residence is "exempt," meaning a bankruptcy trustee cannot sell it to pay your creditors. However, a federal tax lien is not subject to state exemption laws. Even if the debt is discharged, the lien remains a cloud on your title that prevents you from refinancing or selling the property. SJKP LLP utilizes specific motions to value and avoid liens to the extent they exceed the value of the property, a technical process that requires expert appraisals and vigorous advocacy.

Chapter 13 provides a unique opportunity to "pay off" the lien over five years at a reduced interest rate. Once the plan is completed, the court can order the IRS to release the lien, providing you with a truly clear title. This is a critical advantage for property owners who would otherwise be trapped by a lien that continues to grow with interest even after a Chapter 7 filing.

If you have already received a discharge but the lien remains, you may be forced to negotiate a "Certificate of Discharge" or "Subordination" with the IRS. This process is administratively complex and requires proving to the IRS that the lien has no remaining value or that its removal is in the best interest of the government. We manage these post-bankruptcy negotiations to ensure that the relief you gained in court is reflected in the public land records.

Filing an Offer in Compromise (OIC) is a popular tax resolution strategy, but it is a "poison pill" for bankruptcy eligibility. An OIC tolls the 240 day assessment clock for the entire time the offer is pending, plus an additional thirty days. Many taxpayers file for bankruptcy while their OIC is still being processed, unaware that they have just reset their eligibility clock and ensured their tax debt will survive the bankruptcy.

If you have filed for bankruptcy in the past, the time between the previous filing and the current one must be carefully analyzed. The law adds an extra six months of tolling to the three year and two year rules for any time spent in a previous bankruptcy stay. Pro se filers almost never calculate these "add-on" periods correctly, leading to the summary denial of their discharge by the bankruptcy court.

The IRS is the most sophisticated creditor in any bankruptcy proceeding. If you fail to list all of your assets, income sources or prior tax assessments with forensic accuracy, the IRS will move to dismiss your case for "bad faith" or "substantial abuse." We conduct an exhaustive pre-filing investigation to ensure that your petition is bulletproof, preventing the IRS from finding a technicality to use against you.