Can Bankruptcy Stop an IRS Levy?

Getting notices from the IRS can feel like the walls are closing in. The letters are confusing, the deadlines intimidating, and the consequences severe. You don’t have to face this alone. Bankruptcy can give you a reprieve from IRS levies, providing breathing room and a way to start regaining control over your financial future. Whitten & Whitten has worked with thousands of clients over the years, many facing similar IRS troubles. Let’s take a closer look at IRS levies and how bankruptcy might be the solution you need.

What Is an IRS Levy?

An IRS levy is a legal seizure of your property to satisfy unpaid tax debt. The IRS can take money directly from your wages, bank accounts, or even seize physical property like your home or car. Unlike other creditors who must go through lengthy court processes, the IRS has broad powers to collect what it claims you owe, making its collection actions particularly intimidating and swift.

Why Should You Try to Stop an IRS Levy Immediately?

Time is critical when facing an IRS levy. Once the IRS begins seizing your assets, it can take:

• Your entire paycheck, leaving only a small exemption for basic living expenses
• All funds from your bank accounts without warning
• Your home, car, or other valuable property
• Future income and assets until the debt is fully paid

The financial devastation can happen quickly, making it difficult to afford basic necessities or legal help.

Will Filing Bankruptcy Freeze an IRS Levy Right Away?

Yes—filing Chapter 7 or Chapter 13 bankruptcy immediately triggers an “automatic stay.” This court order forces the IRS to stop most collection actions, including wage garnishments, bank levies, and asset seizures. If the IRS has recently seized funds, it may be required to return those funds. The automatic stay goes into effect the moment your bankruptcy petition is filed, providing immediate protection from aggressive IRS collections.

Can All Tax Debts Be Eliminated in Bankruptcy?

Not all IRS debt can be wiped out through bankruptcy. Only older tax debts meeting specific criteria can be discharged, such as:

• Income taxes are at least three years old from the original due date
• Tax returns that were filed at least two years before bankruptcy
• Taxes assessed at least 240 days before filing (with some exceptions)
• No fraud or willful evasion involved

Recent income taxes, payroll taxes, and fraud-related tax debts typically cannot be discharged. However, even when bankruptcy can’t erase every tax bill, it can stop immediate collection actions and help you develop a manageable plan for the remaining debt.

How Can a Bankruptcy Attorney Protect You from Aggressive IRS Collections?

IRS collections are complex, and mistakes can be costly. A bankruptcy attorney can:

• Make sure the automatic stay is properly enforced against the IRS
• Determine which tax debts qualify for discharge
• Negotiate payment plans or settlements for non-dischargeable taxes
• Protect your assets during the bankruptcy process

Facing the IRS alone is scary. A skilled attorney can be your shield and guide through this challenging process.

What Are Your Next Steps If the IRS Is Threatening a Levy?

Don’t wait—take action immediately:

• Don’t ignore IRS letters or notices
• Gather all your financial records and tax documents
• Contact a bankruptcy attorney promptly to discuss your options
• Consider alternatives if bankruptcy isn’t right, such as offers in compromise or installment agreements

Take Control of Your Financial Future

Bankruptcy can provide temporary relief and, in some cases, reduce or eliminate tax debt, but the process is complicated and time-sensitive. The sooner you act, the more options you’ll have available.

Don’t face the IRS alone. Contact Whitten & Whitten today for a consultation to explore how bankruptcy might help stop your IRS levy and give you the fresh start you deserve.