The Internal Revenue Service (IRS) has numerous enforcement tools at its disposal. When taxpayers fall behind on their financial obligations, the IRS may engage in aggressive efforts to collect on the past-due amount.
Sometimes, the IRS intercepts a portion of a taxpayer’s income by obtaining a wage garnishment. While wage garnishment does lead to a reduction in the amount of tax debt an individual has, those struggling to meet their financial obligations may end up in much worse circumstances after a wage garnishment occurs. People may decide to file for personal bankruptcy because of an unsustainable budget or an attempt to garnish their wages.
Can a personal bankruptcy filing protect those facing an IRS wage garnishment?
Bankruptcy can provide some relief
The details of an individual’s circumstances largely dictate how much help bankruptcy may offer in a wage garnishment scenario. Those who file for bankruptcy while at risk of a wage garnishment but not yet subject to one could prevent the IRS from successfully securing a wage garnishment.
For those already subject to IRS wage garnishment, the type of bankruptcy they pursue determines the relief they receive. In a Chapter 7 bankruptcy, the automatic stay provided at the time of filing could temporarily halt the enforcement of a garnishment order.
However, the automatic stay is a temporary protection. The filer is likely to be subject to the wage garnishment again after they complete the bankruptcy. Unless they are three years old or older, their past-due income taxes are likely not eligible for discharge in a bankruptcy filing.
In a Chapter 13 filing, people may include their pre-existing tax debts in their repayment plan. They may be able to halt wage garnishment by reaching an alternate arrangement with the IRS.
The best time to pursue bankruptcy relief is often before creditors take drastic steps in civil court. However, there is still relief available for those who are currently subject to IRS wage garnishment.
Reviewing the details of a garnishment and one’s tax debt with a skilled legal team can help an individual determine the best way to address their income tax obligations in a personal bankruptcy filing. Although bankruptcy may not fully eliminate the obligation to repay certain debts or undo a garnishment, it can make balancing a budget a more achievable personal goal.