When the IRS Keeps Collecting After Your Bankruptcy Discharge

You did everything right. The case closed, the discharge order came, and then a levy notice showed up for a year you were sure was gone. Now what?

First, breathe. Second, figure out whether the IRS is actually violating the discharge or just collecting something the discharge never covered. Those are very different problems with very different fixes.

What the discharge injunction prohibits

A bankruptcy discharge does more than cancel a debt on paper. Under 11 U.S.C. § 524(a)(2), it operates as an injunction against starting or continuing an action, using process, or taking any act "to collect, recover or offset any such debt as a personal liability of the debtor."

Applied to the IRS, that covers the usual tools:

• Wage levies and bank levies for a discharged tax year.
• Offsetting a refund for a post-bankruptcy year against a discharged tax. The statute uses the word "offset" on purpose.
• Continued demands for payment of a discharged balance.
• Seizing property you acquired after filing to pay a discharged tax.

What is not a violation

This is where most "the IRS is violating my discharge" calls end up. The discharge is narrower than people think.

Years that were never discharged. The discharge order does not list your tax years one by one. It discharges whatever qualifies under the law. If a year failed the 3-year rule, the 2-year rule, or the 240-day rule, or involved a late-filed return, a substitute for return, or fraud, the IRS can collect it after the case. That is not a violation. That is the law working.

The surviving lien. A discharge ends personal liability, not the lien. The IRS can still enforce a properly filed lien against property you owned when you filed (see getting the tax lien released after discharge). What it cannot do is use that lien as an excuse to reach post-petition wages or new accounts for a discharged year. The IRS's own manual says the lien on dischargeable liabilities attaches only to pre-petition property excluded from the bankruptcy estate (IRM 5.9.17).

Other people. Under 11 U.S.C. § 524(e), your discharge does not affect anyone else's liability for the same debt. If you filed joint returns and your spouse did not file bankruptcy, the IRS can keep collecting from your spouse.

Step one: confirm the year was actually discharged

Pull your IRS account transcripts. After a discharge, IRS insolvency staff review the account and are supposed to adjust the years they agree were discharged (IRM 5.9.17). If the transcript shows a discharged year abated to zero and the IRS is still collecting, that points to an error. If the transcript still shows a balance, the IRS may think the year survived.

Run the dates yourself, or use the bankruptcy discharge calculator as a first pass. Then look at the return filing date, any substitute-for-return history, and any prior bankruptcies or offers that may have stretched the lookback periods.

When you and the IRS disagree about a year

If the IRS says a year survived and you say it was discharged, that is a dischargeability dispute. You do not have to fight it with phone calls forever.

A closed case can be reopened "to accord relief to the debtor, or for other cause" under 11 U.S.C. § 350(b). Under Federal Rule of Bankruptcy Procedure 4007(b), a complaint to determine dischargeability of a debt other than the kinds listed in § 523(c) may be filed at any time, and the case may be reopened without an additional filing fee for that purpose. Tax claims under § 523(a)(1) are not § 523(c) debts. The bankruptcy court can also determine the tax itself under 11 U.S.C. § 505. See Section 505.

The most common fight is the late-filed return question, where courts across the country have split. Florida sits in the Eleventh Circuit, so the approach in In re Justice, 817 F.3d 738 (11th Cir. 2016), matters here. Read are late-filed tax returns dischargeable before you assume the IRS is wrong.

When the IRS really is violating the discharge

Start with the practical fix. Send the IRS a copy of the discharge order, identify the tax periods, and ask that collection stop and the periods be adjusted. Keep copies of everything. Most problems end here, because most of them are processing errors.

When they do not end there, IRC § 7433(e) gives you a damages remedy. If an IRS officer or employee, in connection with collecting federal tax, willfully violates § 524, you may petition the bankruptcy court for damages against the United States.

How the § 7433(e) claim works

• Willfulness required. The statute covers willful violations. An honest computer glitch the IRS fixes promptly is a weak case.
• Damages. Actual, direct economic damages plus the costs of the action, capped at the lesser of $1,000,000 or those damages (IRC § 7433(b)). You have a duty to mitigate.
• Administrative claim first. Under Treas. Reg. § 301.7433-2(e), you send a written claim to the Chief, Local Insolvency Unit, for the district where your bankruptcy was filed. It must include your identifying information, the court and case number, a reasonably detailed description of the violation, a description of your injuries, the dollar amount, and your signature or that of an authorized representative.
• Waiting period. You generally cannot petition the court until the IRS decides the claim or six months pass, whichever is earlier.
• Deadline. The petition must be filed within two years after the cause of action accrues.
• Fees. Litigation and administrative costs, including attorney's fees, may be recoverable only under IRC § 7430, which has its own requirements, including net worth limits.

Why not just ask for contempt?

Against a private creditor, the usual remedy for a discharge violation is civil contempt. In Taggart v. Lorenzen, 587 U.S. 554 (2019), the Supreme Court held that a court may hold a creditor in civil contempt for violating a discharge order when there is no fair ground of doubt that the order barred the creditor's conduct.

The IRS is different. Section 7433(e)(2)(A) says that, notwithstanding 11 U.S.C. § 105, the § 7433(e) petition is the exclusive remedy for recovering damages for these IRS violations. You can still ask the bankruptcy court to enforce the discharge and order the collection stopped. But if you want money for the harm, § 7433(e) is the road, with its claim procedure and deadlines.

Keep a paper trail from day one

Damages claims live and die on documentation. Keep every notice, envelope, levy, bank statement showing the hit, and record of every call: date, name, badge number, what was said. Note the money you lost and what it cost you, such as bounced payments, late fees, or lost work time. Vague complaints get vague results.

For more background on how tax debt and bankruptcy fit together, see this guide to bankruptcy for tax problems.

Make the discharge mean something

A discharge the IRS ignores is a discharge you have to enforce. Call (813) 229-7100 and we will check your transcripts, confirm which years were actually discharged, and decide whether you have a processing error, a real dispute, or a violation. Every case turns on its own transcripts and dates; this page is general information, not legal advice for your situation.