Sometimes, but generally not. It has been our experience that problems arise unless you deal with the IRS from the outset. If you file a Chapter 13 bankruptcy, then any non-dischargeable IRS debt can be paid back through the bankruptcy Plan at 0% interest. That will save you a tremendous amount of money if you owe the IRS more than $10,000.
Can I discharge IRS debt?
If your tax returns have been on file for more than three (3) years and your case happens to fall within the exception to the general rule that taxes are not dischargeable, then it is important to specifically notify the IRS that the taxes have been discharged. Otherwise, in a Chapter 7 bankruptcy the IRS typically takes the position that they are never discharged.
As such, it is often necessary to file an Adversarial Proceeding in Chapter 7 and obtain a Federal Court Order against the IRS advising them that they have been discharged. An Adversary Proceeding is like filing a separate lawsuit against the IRS. When our eligible clients do not obtain such a specific Order from the Federal Bankruptcy Judge, we have found it common for the IRS to continue to try to levy on their accounts and/or to withhold tax refunds to which they would otherwise be entitled.