The automatic stay is the closest thing bankruptcy has to an emergency brake. It kicks in when the petition is filed, without a hearing and without a judge signing anything. For people facing an IRS levy, that is often the whole reason they are filing that week.
But the stay is not a force field. Congress wrote specific exceptions for tax authorities, and the IRS uses them. Knowing which is which keeps you from panicking over the wrong letter and ignoring the right one.
What the stay stops
Under 11 U.S.C. § 362(a), a bankruptcy petition operates as a stay of a long list of acts. The ones that matter most with the IRS:
- Collection of pre-petition taxes. Any act to collect, assess, or recover a claim that arose before the case (§ 362(a)(6)), subject to the tax exceptions below.
- Levies and seizures. Any act to obtain possession of or control over property of the estate (§ 362(a)(3)).
- New or enforced liens. Any act to create, perfect, or enforce a lien against estate property (§ 362(a)(4)), or against your property for a pre-petition claim (§ 362(a)(5)).
- Setoff. Offsetting a pre-petition debt owed to you against a claim against you (§ 362(a)(7)), with an important tax exception.
- Tax Court. Starting or continuing a Tax Court case about an individual's tax for periods ending before the bankruptcy order for relief (§ 362(a)(8)).
In practice, that means wage levies, bank levies, and the Federal Payment Levy Program should stop. The IRS manual says the IRS is prohibited from using that payment levy program against people in bankruptcy, and it directs staff to correct inadvertent stay violations quickly, including returning levy payments received while the stay is in effect (IRM 5.9.4).
What the stay does not stop
Section 362(b)(9) carves out four things a taxing authority can keep doing:
- An audit to determine tax liability.
- Issuing a notice of tax deficiency.
- A demand for tax returns.
- Making an assessment and issuing notice and demand for payment.
So yes, the IRS can keep examining your 2023 return while your case is pending. It can send you a deficiency notice. It can assess. What it cannot do is collect on that assessment from estate property. The same subsection adds a protective twist: a tax lien that would otherwise attach to estate property because of the new assessment does not take effect unless the tax will not be discharged and the property comes back to you.
Other exceptions you may run into:
- Refund offsets. Under § 362(b)(26), the IRS may offset an income tax refund for a pre-petition period against an income tax liability for a pre-petition period, without asking the court. If the liability is being litigated, the IRS may hold the refund until the dispute is resolved. Details in tax refunds in bankruptcy.
- Criminal cases. A criminal action is not stayed (§ 362(b)(1)). Bankruptcy is not a defense to a tax prosecution.
Not every letter is a violation
The IRS runs on automated notices, and the computer does not always know you filed. A balance-due notice that arrives the week after your petition is usually a timing problem, not defiance. Make sure the IRS is listed on your schedules and mailing matrix with the correct address, and forward anything aggressive to your attorney.
A levy that actually takes money after the filing date is different. That is the stay being violated, and it needs to be fixed fast.
Acts in violation of the stay are void
In the Eleventh Circuit, which covers Florida, actions taken in violation of the automatic stay are void and without effect. That rule goes back to Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306 (11th Cir. 1982), and the court repeated it in United States v. White, 466 F.3d 1241 (11th Cir. 2006). A levy that grabs your paycheck after you filed is not a done deal. The money should come back.
Damages when the IRS willfully violates the stay
Congress gave taxpayers two tools.
IRC § 7433(e). If an IRS employee willfully violates § 362 in connection with collecting federal tax, you may petition the bankruptcy court for damages against the United States. Recovery is limited to actual, direct economic damages plus costs, capped at $1,000,000. Before going to court, you generally must file an administrative claim with the Chief, Local Insolvency Unit, for the district where your case was filed, then wait for a decision or six months, and file within two years after the claim accrues (Treas. Reg. § 301.7433-2).
The Bankruptcy Code's stay-damages remedy. Under 11 U.S.C. § 362(k), an individual injured by a willful stay violation recovers actual damages, including costs and attorney's fees. Section 7433(e) preserves that route (it still refers to the provision's old number, § 362(h)), but says litigation and administrative costs in such an action against the IRS may be awarded only under IRC § 7430. And punitive damages are off the table against the government, because 11 U.S.C. § 106(a)(3) bars punitive damage awards against a governmental unit.
Translation: you can be made whole, but you are not getting rich off an IRS mistake. Fix it first, document everything, and pursue damages when the harm is real.
Repeat filers get less protection
If you had a case dismissed within the year before your current filing, the stay ends on the 30th day after filing unless the court extends it after a timely motion showing good faith (§ 362(c)(3)). With two or more dismissed cases pending within the prior year, no stay goes into effect at all unless the court orders one (§ 362(c)(4)). If the IRS is the reason you are filing again, plan for this before the petition, not after.
When the stay ends
For acts against you personally, the stay lasts until the case is closed, dismissed, or a discharge is granted or denied, whichever comes first (§ 362(c)(2)). If you receive a discharge, the discharge injunction in 11 U.S.C. § 524 takes over for discharged taxes. If the case is dismissed, the IRS picks up where it left off. See what a dismissed bankruptcy does to your tax debt and IRS collection after discharge.
The stay costs you time on two clocks
The stay is not free. IRC § 6503(h) suspends the 10-year collection period while the IRS is barred from collecting, plus six more months, and suspends the assessment period plus 60 days. See how bankruptcy pauses the collection clock.
The dischargeability lookback periods also stretch. In Young v. United States, 535 U.S. 43 (2002), the Supreme Court held that the 3-year lookback is tolled during a prior bankruptcy, and the Code now spells out tolling rules in the hanging paragraph of § 507(a)(8). A quick filing to stop a levy can push your old tax years further from discharge. Read how prior bankruptcies stretch the lookback periods before you file an emergency case.
If you are dealing with an active levy and want the non-bankruptcy options too, see this overview of IRS levies.
Use the brake on purpose
The automatic stay is powerful, and a rushed filing can cost you more than the levy did. Call (813) 229-7100 before you file, especially if you have filed before or have years close to the discharge line. Every case turns on its own transcripts and dates; this page is general information, not legal advice for your situation.