Chapter 7 Bankruptcy: Federal Tax Debts And The Automatic Stay
by Veeti Lepisto
An automatic stay is one of the benefits of filing for Chapter 7 bankruptcy. The stay can help keep creditors from taking legal action until your bankruptcy is completed. If you have a federal tax debt, here is what you need to know about how an automatic stay can impact your debt.
What Is an Automatic Stay?
The stay immediately goes into effect when you file for Chapter 7 bankruptcy. The stay stops creditors from taking you to court or taking any other actions to collect on the debt. The Internal Revenue Service, or IRS, will be notified with your other creditors of the stay.
You are protected by the stay until your bankruptcy is completed unless the IRS asks the court to lift the stay. In that instance, the judge will review the IRS's request and make a decision. If the judge agrees to remove the stay, the IRS can continue legal actions to collect on your debt.
What If the Stay Remains?
In the event that the court rules that the stay must remain in place, the IRS has several other options available to it to try and collect on the debt. For instance, the agency could choose to file a proof of claim. The proof of claim basically means that the agency wants to be paid for the debt and that it should not be discharged.
The IRS could also ask the court to completely dismiss your bankruptcy case. If the judge agrees, your complete filing could be dismissed. You can re-file at a later time.
What Happens at the Completion of the Bankruptcy?
Depending on the type of tax debt you have, there is a chance that it could be discharged when your bankruptcy is completed. There are certain rules that must apply
If the court rules that your tax debts are not dischargeable, the IRS can once again start collection efforts. If the bankruptcy trustee has taken any of your assets to liquidate, the IRS can receive part of the proceeds and this will help lower the amount that you owe.
Consult with an attorney experienced in handling tax debts and Chapter 7 bankruptcies. He or she can help you decide before filing whether or not it will be beneficial to your financial situation. To find out more, speak with someone like Morrison & Murff.
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About Me
Several years ago, one of my best friends married the guy of her dreams. This tall, quiet man adored my friend. Almost every week during their courtship, he presented her with a beautiful, fragrant arrangement of flowers. At the time, my friend’s mom joked that her home resembled a funeral home because of all of the flowers her boyfriend sent her. After the happy pair married, they purchased a new home together and quickly began running out of money, meaning that he could no longer afford to give her the flowers she loved. They even discovered they couldn’t afford to pay the monthly mortgage. After only a few years of marriage, they filed for bankruptcy. On this blog, you will discover the ways a reputable bankruptcy attorney can help you successfully recover from financial ruin.