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Can You File Bankruptcy If You Owe the IRS? Options to Weigh First (2026)
Yes. The IRS says that if you owe past due federal taxes you cannot pay, bankruptcy may be an option, and it lists an IRS payment plan and an offer in compromise as other options. Which one fits depends on how old your tax years are, whether the IRS has filed a lien, and what else you owe. All State Tax Resolution (Sabih Shafi, EA, IRS Enrolled Agent) compares those routes on the IRS side first, so you choose with the full picture.
Want the options compared against your own tax years? Book a free 20-minute tax review.
Why the order matters
Bankruptcy does not treat all tax debt alike. The IRS says not all debts are eliminated and many tax debts are excepted from the discharge, and that the scope of the discharge depends on the chapter and the nature of the debt. For income tax the tests are about timing: how long ago the return was due, when it was filed, and when the IRS assessed the tax. Our hub on bankruptcy and IRS debt lays out those tests.
If part of your balance would survive a filing anyway, you may still be left with an IRS payment to make afterward. That is the reason to look at the IRS-side options before you file, not after.
An installment agreement
The IRS says you may qualify for a long-term payment plan, an installment agreement, if you owe $50,000 or less in combined tax, penalties and interest and have filed all required returns. A short-term payment plan, paid within 180 days or less, is available if you owe less than $100,000 in combined tax, penalties and interest.
Under 26 U.S.C. 6331(k), no levy may be made on property while an installment agreement request is pending, and if the request is rejected, for 30 days after and during any timely appeal.
An offer in compromise
An offer in compromise may allow you to settle your tax debt for less than the full amount you owe if you cannot pay in full or paying would cause financial hardship. The IRS considers income, expenses and asset equity, and generally will not accept an offer if you can pay in full through a payment plan or equity in assets.
The requirements and costs matter before you start:
You must file all required tax returns and make required estimated tax payments.
You must not be in an open bankruptcy.
Every application requires a $205 application fee and a first payment, unless you meet the low-income qualifications.
After you apply and the IRS confirms eligibility, it suspends most collection activities, extends your collection period, and may file a Notice of Federal Tax Lien. If an offer is rejected, the application fee is not returned, payments are applied to the balance, and you can appeal. Our post on how much an offer in compromise costs covers the fees in more detail.
Currently Not Collectible status
If you cannot pay because of financial hardship, the IRS may place your account in Currently Not Collectible (CNC) status, which temporarily suspends most collection activities. You still owe the full amount, it is not forgiven or cancelled, and penalties and interest continue to accrue until you pay in full. For how CNC compares with a payment plan, see installment agreement vs Currently Not Collectible.
How a filing affects an installment agreement
The IRS says that when a taxpayer with an installment agreement files bankruptcy, the IRS suspends but does not terminate the agreement during the bankruptcy. When the case is dismissed or discharged and liabilities survive, the IRS reviews the account to determine whether a reinstatement or revision is appropriate.
The IRS also says that after a bankruptcy ends, a qualified individual may apply for a long-term payment plan if owing $50,000 or less in combined tax, penalties and interest and having filed all required returns, or a short-term plan if owing less than $100,000.
How a filing affects an offer in compromise
The IRS rule is direct: while in an open bankruptcy proceeding, a taxpayer is not eligible for an offer in compromise. The IRS also says the filing of a petition suspends most collection efforts.
We do not assume what that means for an offer already in process. The result depends on the facts, so the order of the steps is confirmed with the IRS before a filing date is chosen. If you are considering an offer and a filing together, decide which comes first on purpose.
What a dismissal can do to your timeline
A bankruptcy that ends in dismissal rather than discharge leaves the tax in place. The IRS says a dismissal ends the bankruptcy protection and does not relieve debts, it may keep payments, and time in bankruptcy extends the time to collect the remaining liabilities. The IRS generally has 10 years from assessment to collect, and that period is usually suspended from the day the bankruptcy is filed until the case is discharged, dismissed or closed, with another six months added by law.
Liens complicate every route
If the IRS filed a Notice of Federal Tax Lien before a bankruptcy petition, Publication 908 says a discharged tax may still be collectible from your pre-bankruptcy property, because perfected liens generally pass through bankruptcy unaffected. The IRS says paying your tax debt in full is the way to get rid of a lien, and that lien withdrawal, subordination or discharge of property exist if specific conditions are met. A lien belongs in the comparison from the start.
Talking to the IRS about a bankruptcy case
The IRS says to speak to it about a bankruptcy case, call 800-973-0424 (Centralized Insolvency Operation), Monday through Friday, 7 a.m. to 8 p.m. Eastern time, with the bankruptcy case number. It also says that in certain conditions individuals who have filed bankruptcy may make voluntary payments, and where those payments go depends on the chapter.
Working with an Enrolled Agent
Enrolled agents are licensed by the IRS and must pass a three-part Special Enrollment Examination covering tax planning, return preparation and representation. With Form 2848 you can authorize an individual who is eligible to practice before the IRS to represent you.
We start on the IRS side from your first call, including the pre-bankruptcy resolution options above. If a bankruptcy filing turns out to be the right route, we bring in our partner attorney for the filing itself, and you keep working with one team.
Frequently Asked Questions
Can you file bankruptcy if you owe the IRS?
Yes. The IRS says that if you owe past due federal taxes you cannot pay, bankruptcy may be an option, along with an IRS payment plan or an offer in compromise. Whether it fits depends on which tax years pass the timing tests, whether the IRS filed a lien, and what the alternatives would cost you.
What happens to my IRS installment agreement if I file bankruptcy?
The IRS says it suspends but does not terminate the installment agreement during the bankruptcy. When the case is dismissed or discharged and liabilities survive, the IRS reviews the account to determine whether a reinstatement or revision is appropriate. After the case ends, a qualified individual may also apply for a new payment plan.
Can I submit an offer in compromise while in bankruptcy?
Not while the bankruptcy is open. The IRS lists not being in an open bankruptcy as an offer in compromise requirement, and says a taxpayer in an open bankruptcy proceeding is not eligible. The sequence of an offer and a filing should be decided before either step, with the IRS side confirmed first.
Does an offer in compromise stop IRS collection?
Partly. After you apply and the IRS confirms eligibility, it suspends most collection activities, extends your collection period and may file a Notice of Federal Tax Lien. Under 26 U.S.C. 6331(k), no levy may be made while an offer is pending, and if it is rejected, for 30 days after and during any timely appeal.
What is Currently Not Collectible status?
If you cannot pay because of financial hardship, the IRS may place your account in Currently Not Collectible status, which temporarily suspends most collection activities. You still owe the full amount, it is not forgiven or cancelled, and penalties and interest continue to accrue until you pay in full.
Should I try an IRS option before filing bankruptcy?
It depends on your tax years. If older years would pass the discharge tests and recent years would not, the recent years still need a plan. Looking at the installment agreement, offer and CNC options first, and the lien position, lets you see what bankruptcy would actually change. A free 20-minute review covers that comparison.
Related Reading
Sources
Last reviewed: October 2026 by Sabih Shafi, EA
Talk to an Enrolled Agent
This article is general information, not individual tax advice. If you want to talk through your own IRS situation, book a free 20-minute review or call or text us directly.
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