Quick answer

Bankruptcy immediately stops most IRS collection steps (levies, garnishments, levying bank accounts) through the automatic stay, but it does not automatically erase all tax liabilities. Whether a tax debt is discharged depends on rules in the Bankruptcy Code and IRS practice: age-of-return tests, timely filing, assessment timing, and absence of fraud or willful evasion. (IRS: Bankruptcy guidance; U.S. Courts: bankruptcy basics.)

What bankruptcy will usually stop

  • Automatic stay: Once you file, the bankruptcy court issues an automatic stay that generally halts IRS levies, wage garnishments, and collection phone calls while the case is active. This gives time to sort priorities and negotiate (see IRS bankruptcy page: https://www.irs.gov/businesses/small-businesses-self-employed/bankruptcy).
  • Discharge of qualifying income tax debts: Older federal income tax debts can be discharged if they meet four main tests: the tax return was due at least three years before filing (including extensions), the tax return was filed at least two years before filing, the tax was assessed at least 240 days before filing, and the return was not fraudulent and not subject to willful evasion. These rules are reflected in bankruptcy practice and IRS guidance.

What bankruptcy usually does not stop

  • Trust‑fund or payroll withholding taxes: Employer withholding taxes (trust funds) are generally non-dischargeable and remain collectible after bankruptcy.
  • Fraud or willful tax evasion: If the IRS can show the tax resulted from fraud or willful evasion, the tax survives bankruptcy.
  • Recent tax assessments and recent returns: Taxes that don’t meet the timing tests (recently filed returns or recent assessments) are not dischargeable.
  • Federal tax liens: A bankruptcy discharge relieves the debtor of personal liability for a discharged tax, but liens generally survive the bankruptcy unless the lien is released or subordinated by the IRS. That means the IRS may still have a claim against property (see our glossary: How Bankruptcy Interacts With Federal Tax Debts and IRS Liens).

Practical differences between Chapter 7 and Chapter 13

  • Chapter 7 (liquidation): Can discharge qualifying old income taxes but won’t eliminate federal tax liens without separate relief. Good for eliminating unsecured consumer debts and eligible tax liabilities.
  • Chapter 13 (reorganization): The automatic stay applies, and Chapter 13 plans allow you to repay priority taxes over time, which can prevent asset loss while resolving tax obligations. For some taxpayers, Chapter 13 is the only practical way to keep property and address recent or priority tax claims.

Steps to take if you’re facing IRS collections and considering bankruptcy

  1. Get current tax filings in order. Missing returns can make discharge impossible.
  2. Confirm assessment dates and filing dates to test discharge eligibility (three‑year, two‑year, 240‑day rules).
  3. Talk to a bankruptcy attorney and a tax professional before filing; they can weigh Chapter 7 vs Chapter 13 and non‑bankruptcy alternatives like an Offer in Compromise or Currently Not Collectible status.
  4. If a lien exists and you need clear title (sale or refinance), discuss lien withdrawal, subordination, or release with counsel and the IRS (see our guide: Steps to Take If the IRS Files a Tax Lien Against You).

Short example from practice

In my practice, clients who believed bankruptcy would erase all tax bills were often surprised when trust‑fund taxes or recent assessments remained. One common scenario: older income taxes that met the timing tests were discharged in Chapter 7, but the IRS’s federal tax lien continued and required a separate resolution when the client sold a house.

FAQs (short)

  • Will the IRS stop garnishing my wages as soon as I file bankruptcy? Yes — the automatic stay generally stops garnishments, though you must provide proof to employers or financial institutions and the IRS may petition the court for relief in limited cases.
  • Can penalties be discharged? Some penalties that are part of a qualifying income tax may be discharged, but certain penalties tied to fraud or trust‑fund liabilities are not dischargeable.

Takeaway and next steps

Bankruptcy can be a powerful tool to pause IRS collections and eliminate some tax debts, but it is not a universal shield. Before filing, document dates, file missing returns, and consult a bankruptcy attorney with tax experience. For practical, non‑legal guidance see the IRS bankruptcy page and the U.S. Courts overview. (IRS: https://www.irs.gov/businesses/small-businesses-self-employed/bankruptcy; U.S. Courts: https://www.uscourts.gov/services-forms/bankruptcy.)

Disclaimer: This article is educational and not legal or tax advice. For personalized guidance, consult a bankruptcy attorney or tax professional familiar with 2025 law and your full financial picture.