No New Yorker ever wants to consider filing for bankruptcy. But this is an expensive city and state to live in, and sometimes the debt just keeps building up higher and higher. Adding to those financial debts can be taxes and any number of tax debts owed to the Internal Revenue Service (IRS).

When someone files for bankruptcy, an Automatic Stay is typically imposed, prohibiting creditors and debt collectors from pursuing further payouts from a debtor while the stay is pending.

But the stay has limitations, and those extend to IRS tax liens.

What is an Automatic Stay in Bankruptcy?

After a bankruptcy is officially filed, an “Automatic Stay” can be imposed against certain creditors looking to collect from the debtor. The Automatic Stay is an injunction against creditors, protecting the debtor as they attempt to get their affairs in order.

In some bankruptcy cases, there is no Automatic Stay, or one needs to be specifically requested by an attorney. Additionally, an Automatic Stay can be lifted per a creditor’s Motion for Relief of Automatic Stay, provided that the judge overseeing the case grants the motion.

What Could Stop the IRS from Further Pursuing a Tax Lien?

If there are debts related to tax liens imposed on pieces of property by the IRS, those debts are typically not forgiven or dismissed by the Automatic Stay of a bankruptcy filing. While some tax debts may be resolved by bankruptcy, the tax lien claims will remain.

While it may not be possible to fully dismiss a tax lien against your property via bankruptcy, the Automatic Stay could block further collection efforts for other debts, making it easier to address the complexities of the IRS claims.

At the end of the day, however, the IRS may be considered the most tenacious and empowered of any individual or organization looking to collect on a debt.

What Tax Debts Could Be Dismissed Via Bankruptcy?

While most debts can be dismissed via filing for bankruptcy, most tax debts cannot be forgiven, dismissed, or discharged. There are, however, some exceptions to that rule.

Some tax-related debts that could be discharged by bankruptcy include:

  • Certain federal and state income tax debt can be forgiven.
  • The income taxes were due three years before the filing for bankruptcy. Recent tax debts are not dischargeable in bankruptcy.
  • The tax debts are related to gross receipts.
  • The tax debts are related to work-related wages and income. You cannot discharge payroll taxes.
  • Wrongly accused of tax fraud or tax evasion in the taxable year in question.