Consumers facing serious financial hardship are commonly falling behind with the IRS too. Even though letters are coming from the federal government the unpaid tax notices start piling up with the rest of the bills anyway. When any debt becomes severely delinquent, creditors including the IRS have the ability to garnish wages. Unlike other creditors however, the IRS does not need a court order to do so, and they can usually take a higher amount than other creditors as well.
Garnishment from the IRS, also known as a levy, is automatically sent to employers or banks and even to the Social Security Administration when debts become extremely past due. Without either full payment or a documented financial hardship, like bankruptcy, there is no way to stop an IRS levy.
In a Chapter 7 Bankruptcy an IRS levy won’t be dismissed in a bankruptcy, but it will be temporarily halted once the bankruptcy is initiated. In a Chapter 13 Bankruptcy the taxes will be dealt with in the Bankruptcy. An “automatic stay” is immediately enacted stopping all debt collection while the case is open. Except for child support collections, the automatic stay will stop wage garnishments from all creditors including those from the IRS during the bankruptcy.
During this process the tax debt may or may not be eliminated or reduced depending on the age or the tax debt and when returns were filed. Specific standards have been created by the IRS to determine a tax payer’s ability to make payments, and if income is below minimum living standards, then the IRS may suspend its collection efforts. But, being part of the federal government the IRS is obviously quite different from other creditors. Tax debts by law are much more difficult to discharge than debts from other creditors in bankruptcy.
So, even in bankruptcy most IRS back taxes need to be repaid, but how a consumer files for bankruptcy will affect how their IRS levy is resolved in the future. For example, when a consumer files for chapter 7 bankruptcy, most creditor debts are completely wiped out. A chapter 7 bankruptcy filing will prevent wage garnishment from the IRS during the proceeding, but the levy may return in full when the case finished.
Chapter 13 bankruptcy on the other hand can often be a better solution for some people faced with a levy from the IRS. Some back taxes still need to be repaid under chapter 13, but they will become part of a repayment plan scheduled to be completed in 3-5 years. For most of the clients that come into our office in New York, this scheduled payment program is almost always preferable to having wages garnished.
While not all tax debts are dischargeable in bankruptcy, the stress and financial difficulties coming from IRS wage garnishment can be considerably alleviated through bankruptcy protection.
A bankruptcy attorney is needed in order to understand how your particular wage garnishment troubles can be helped. Bankruptcy law as it pertains to dischargeable tax debt is a complicated area, but options exist that can help if you are being faced with an IRS levy.
If you live in New York, are considering bankruptcy relief or have questions about wage garnishment by the IRS please contact the Law Office of William Waldner for a free bankruptcy consultation. We only practice Bankruptcy Law and are always here to help.
Call 212-244-2882 to arrange a free bankruptcy consultation today. Mention this blog post when scheduling by referencing the promotional code: WGE212 to receive the required 3 bureau credit report, and required credit counseling course, both free with any signed retainer agreement.
This article is intended for educational purposes only. By reading this article no attorney-client relationship has been created.