The Internal Revenue Service (IRS) will have to stop most collection activities when you file for Chapter 7 or Chapter 13 bankruptcy. But for how long will depend on whether you can discharge (wipe out) the tax debt and whether funds will be available to pay the IRS in the bankruptcy.
When you file your bankruptcy petition, bankruptcy's automatic stay goes into effect. The stay temporarily stops most collection actions, including collection efforts for taxes owed before the bankruptcy filing.
To obtain full protection of the automatic stay, you must list the IRS as a creditor so the court will notify the IRS of your bankruptcy filing. However, you'll want to notify the IRS yourself if you're filing shortly before the IRS is scheduled to sell your property in a tax sale or if some other action pending. Be prepared to provide your bankruptcy case number and date as proof of the filing.
You can learn more about how this works in bankruptcy's automatic stay.
Whether your bankruptcy will stop the IRS from collecting tax debts temporarily or permanently depends on whether those debts will be discharged or not in your bankruptcy.
If the tax is dischargeable in the bankruptcy proceeding, and you receive a discharge, the IRS will be permanently enjoined (stopped) from pursuing the debt collection.
Find out whether tax debts are dischargeable in eliminating tax debts in bankruptcy.
If the tax is not dischargeable, the IRS can continue collection efforts against you and your exempt property as soon as you receive your discharge. However, sometimes the IRS will be entitled to receive money in your bankruptcy case if the trustee can sell some of your property. In that situation, the IRS might abate or temporarily stop collection efforts until it receives a bankruptcy trustee's distribution.
In your bankruptcy case, the Internal Revenue Service has the same rights as other creditors. The IRS can:
Particular tax-related actions aren't stopped by a bankruptcy filing, including:
If the IRS does not file a proof of claim in your case, and the IRS does not hold a tax lien, the trustee will not disburse any of the funds it collects in your bankruptcy to the IRS. You can, however, file a proof of claim on behalf of the Internal Revenue Service if the IRS does not file a proof of claim within the time allowed. You have 30 days after the government claims bar date to do this. The government claims bar date is generally 180 days after the date you file your bankruptcy petition.
You can dispute a tax debt in your bankruptcy proceeding by filing an objection to the IRS's proof of claim or a lawsuit in the bankruptcy court to determine your tax liability called an adversary proceeding. Bankruptcy courts have the authority to assess tax debts.
Learn more about how tax debts are treated in Chapter 7 and Chapter 13 bankruptcy in Tax Debts in Bankruptcy.