Tax season can be stressful for anyone, but for John (name changed for privacy), it was a yearly
reminder of mounting tax debt he couldn’t afford to pay. John owned a small business in Florida
that had struggled during the pandemic, leaving him with unpaid taxes, interest, and penalties.
The IRS had started garnishing his wages, and his stress was at an all-time high. He thought
there was no way out—until he reached out to the Dellutri Law Group.
Carmen Dellutri, a Board-Certified Bankruptcy Attorney, met with John to understand his
situation. Together, they explored how bankruptcy laws intersect with tax debt and created a
plan to help John regain control of his finances. Let’s walk through the questions John
asked—questions we’re sure many others are asking, too—and the answers that brought him
peace of mind.
1. Can bankruptcy eliminate some of my IRS tax debt?
John’s biggest concern was whether his tax debt could be discharged. He owed taxes from
several years ago and couldn’t see a way to pay it off.
Carmen explained that certain tax debts could indeed be discharged in bankruptcy, provided they
meet specific criteria. For example, the tax debt must be from a return due at least three years
ago, the tax return must have been filed at least two years ago, and the IRS must have assessed
the debt at least 240 days before the bankruptcy filing. In John’s case, his older tax debts
qualified for discharge under Chapter 7 bankruptcy.
2. What happens to my tax refund if I file for bankruptcy?
John had been counting on his upcoming tax refund to help cover his bills. He was worried he’d
lose it if he filed for bankruptcy.
Carmen assured John that while a tax refund could be considered part of his bankruptcy estate,
there are ways to protect it. In Florida, exemptions can often shield refunds, especially if they’re
tied to earned income credit, or some other exemption. By strategically timing John’s
bankruptcy filing, Carmen ensured he could keep his refund.
3. Are tax liens discharged in bankruptcy?
John also had a tax lien on his property and wanted to know if it would go away with bankruptcy.
Carmen explained that while bankruptcy can discharge the underlying tax debt, tax liens are a bit
trickier. The lien remains attached to any property the IRS has secured it against. However,
John’s case showed that by discharging the tax debt, he could stop the IRS from pursuing
collection actions, and the lien would only affect his property if he sold or refinanced it. Carmen
walked John through his options for negotiating with the IRS post-bankruptcy to address the lien.
4. Can filing bankruptcy stop the IRS from garnishing my wages?
One of John’s biggest worries was his paycheck garnishment. The IRS was taking a significant
portion of his income, leaving him with barely enough to get by.
“The moment we file your bankruptcy petition, the automatic stay goes into effect,” Carmen
explained. This powerful legal tool immediately stops wage garnishments, bank levies, and
other collection actions. John’s bankruptcy filing not only stopped the garnishment but also gave
him breathing room to create a plan for moving forward.
5. If I owe back taxes, which type of bankruptcy is right for me—Chapter 7 or Chapter 13?
Finally, John wanted to know which type of bankruptcy would work best for his situation.
Carmen laid out the differences:
- Chapter 7: A faster option for wiping out qualifying tax debt, ideal for people with limited income and no significant assets at risk.
- Chapter 13: A repayment plan spread over three to five years, allowing John to discharge a portion of his taxes, pay off non-dischargeable taxes and protect his personal assets.
A Fresh Start and a Brighter Future
With Carmen Dellutri’s guidance, John filed for Chapter 7 bankruptcy and successfully
discharged his qualifying tax debts. He kept his tax refund, stopped the IRS garnishments, and
finally felt like he could breathe again. Today, John’s business is back on track, and he’s
committed to staying tax-compliant with the financial tools and advice he gained during the
process.
If you’re overwhelmed by tax debt or unsure how bankruptcy could help, let the Dellutri Law
Group be your guide. With decades of experience and a compassionate, client-focused approach,
we’re here to answer your questions and help you find the right solution. Call us today at 239-
939-0900 to schedule a free consultation.
At the Dellutri Law Group, we’re more than just attorneys—we’re advocates dedicated to your
fresh start. Let us help you write the next chapter of your story.