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Bankruptcy and IRS Levies

When taxpayer cannot or will not pay their taxes, the IRS has two primary means of recourse: tax liens and tax levies. A lien is a type of legal claim to your property, which involves notice to creditors that you owe the IRS money and that its claims take priority. For example, if you have an IRS lien on your house and you sell your house, you will have to pay the IRS before you use any of the money from the sale of your house as a down payment on your next home. A levy differs from a lien in that instead of simply stating a claim to your property and waiting for you to sell it, the IRS levy simply takes whatever asset it is attached to. A levy on your bank account results in the IRS taking enough money to satisfy your tax debt out of your bank account.

The IRS cannot simply decide that you owe back taxes and then place a levy on your bank account or garnish your wages. It must first send you a Notice and Demand for Payment.  Then you must ignore the notice or refuse to pay the tax, after which the IRS will send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. If things have come this far and you do not have the money to pay your tax debt and cannot make other repayment arrangements with the IRS, it is time to consult with an experienced bankruptcy attorney.

Filing for bankruptcy immediately stops the IRS levy. It releases seizures of bank accounts and other property as well as wage garnishment. If you have been unable to persuade the IRS to agree to an installment plan that you could manage on your current salary, you will be able to set an amount you can live with under a Chapter 13 bankruptcy plan. Chapter 13 bankruptcy also ends the accrual of interest and penalties while you are making payments. If you do not have a steady enough or large enough income to file a Chapter 13 bankruptcy, you may still discharge most of your tax debts under a Chapter 7 bankruptcy.

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