Bankruptcy may stop collection attempts from the Internal Revenue Service (IRS), but depending on taxes owed and the chapter you file, it may only be temporary. The automatic stay in bankruptcy helps halt collection attempts from creditors including the IRS. It also helps stop legal proceedings such as wage garnishment .
The automatic stay prevents further collection attempts such as phone calls, letters and emails from creditors. Creditors may not continue efforts to try and sue, garnish, or forward bills to you. Also the IRS may not attempt to garnish your bank account or wages. Offsetting tax refunds is also prohibited. Yet, if you owe for back child support the IRS may still offset your refund for this purpose.
The automatic stay has exceptions. If you file bankruptcy and obtain a discharge for qualifying debts the automatic stay ends. The stay may be in effect for only 30 days when you file if you filed multiple bankruptcies during a previous year with a voluntary dismissal. You may qualify to have the stay extended if you prove your currently filing is in good faith.
Debt incurred after bankruptcy is filed doesn’t qualify for protection under the automatic stay, including recent tax debt . The stay helps protect you in cases of debt that accumulated before your bankruptcy was filed. Under specific circumstances tax debt is dischargeable. There are certain qualifications tax debt should meet before a discharge is considered. The stay, at least, may give you more time to develop a solution in handling your finances.