How Bankruptcy Can Stop IRS Levies and Protect Your Assets
Aug. 22, 2025
Whether it’s a frozen bank account, garnished wages, or looming threats against property, the IRS has tools that cause real financial fear.
But what many people don’t realize is that bankruptcy law can stop these actions quickly and lawfully. Under federal bankruptcy law, applied through Oklahoma courts, people can halt IRS collections, protect essential assets, and find a pathway toward financial stability.
At Deborah Brooks & Associates, P.C., I have worked with many clients across Western Oklahoma who find themselves in the grip of an IRS levy.
What Is an IRS Levy?
An IRS levy is a legal seizure of your property to satisfy a tax debt. This is different from a lien, which is simply a legal claim. With a levy, the IRS can take wages, withdraw funds from your bank accounts, and even seize physical property.
Before the IRS takes this action, it must send a Final Notice of Intent to Levy and give you at least 30 days to respond. Most people don’t realize that they have a short window to act—and that bankruptcy law can immediately halt this process once a petition is filed.
The Power of the Automatic Stay
Once a bankruptcy attorney files a bankruptcy petition on behalf of a client, an automatic stay takes effect. This stay is a legal freeze on all collection efforts, including IRS levies.
Whether the IRS is about to garnish wages or seize assets, the automatic stay blocks that action. Under 11 U.S.C. § 362, creditors must immediately stop any collection activity.
This is one of the most powerful tools in bankruptcy law. In Oklahoma, a bankruptcy attorney sees countless clients regain control of their income and assets within days of filing because the automatic stay is respected and enforced by courts and creditors alike.
Income Tax Debt and Discharge Rules
Not all tax debts can be wiped out in bankruptcy, but many can. Under bankruptcy law, older income tax debt may be dischargeable if it meets certain conditions.
A bankruptcy attorney should review the “3-2-240” rule: the tax return must have been due at least three years before filing, the return must have been filed at least two years prior, and the IRS must have assessed the tax at least 240 days before the bankruptcy.
These dates must be confirmed with IRS account transcripts. If a client meets these conditions, Chapter 7 can eliminate the debt, and Chapter 13 can help pay it in manageable portions. Bankruptcy law doesn’t discharge fraud penalties or recent tax debt, but it provides a structure for dealing with those as well.
Chapter 7 vs. Chapter 13 in Stopping IRS Levies
Chapter 7 and Chapter 13 both have their place in fighting IRS actions. In a Chapter 7 bankruptcy, bankruptcy attorneys help clients discharge qualifying tax debt quickly—usually within a few months. However, Chapter 7 offers less flexibility for debts that can’t be eliminated and doesn’t provide a long-term payment plan.
In contrast, Chapter 13 gives clients up to five years to repay tax debts, which can stop levies and eliminate penalties and interest on older obligations. Bankruptcy law allows for these customized approaches, and the right chapter depends on a person’s income, property, and type of tax debt.
Oklahoma Exemptions That Protect Assets
Oklahoma bankruptcy law includes some of the most generous property exemptions in the country. The Oklahoma homestead exemption allows you to protect your primary residence—up to one acre in a city or town and up to 160 acres in rural areas—without a dollar cap on value.
Most retirement accounts, including 401(k)s and IRAs, are also protected. Household goods, personal vehicles, and tools of the trade can often be retained as well. These exemptions play a vital part in stopping IRS levies through bankruptcy, since they shield essential property from seizure even in Chapter 7 filings.
Tax Liens and How Bankruptcy Law Addresses Them
Bankruptcy can stop IRS levies, but it doesn’t automatically remove tax liens from your property. However, it can reduce their impact. In Chapter 13, a bankruptcy attorney can work with the court to value the lien and pay only what’s necessary based on available equity.
If the lien exceeds the value of the property, the excess amount may be treated as unsecured debt and discharged. Bankruptcy law offers these legal mechanisms to lessen the long-term effect of a lien, even if it remains recorded. For clients trying to keep their homes, this strategy provides significant relief.
Steps to Take if Facing an IRS Levy
If you’re facing an IRS levy, take these steps:
Gather all IRS correspondence, including notices of levy or collection action
Request IRS account transcripts to determine assessment dates and payment history
Consult with a bankruptcy attorney licensed in Oklahoma
Determine if your income tax debts meet discharge criteria under the “3-2-240” rule
Choose Chapter 7 if debts qualify for discharge and assets fall within exemptions
Choose Chapter 13 to repay nondischargeable tax debt and retain control over property
File your bankruptcy petition to trigger the automatic stay
Notify the IRS immediately with your case number and filing date
Track release of any existing levies on wages or bank accounts
Avoid further IRS issues by staying current on tax filings after bankruptcy
Retaining Wages and Bank Accounts
One of the most immediate benefits of bankruptcy law is the protection it offers to wages and bank accounts. In most of these cases, a bankruptcy attorney can file quickly enough to reverse the garnishment or release the frozen funds.
Timing matters. If the IRS hasn’t yet seized the funds, the automatic stay can stop them. If the seizure has occurred but the funds haven’t been distributed, the IRS may be required to return them. Bankruptcy law has sharp teeth in this regard, and the courts support debtors’ rights when the process is used correctly.
Stopping State Tax Levies in Oklahoma
Bankruptcy law doesn’t just apply to federal taxes. The Oklahoma Tax Commission is also subject to the automatic stay. If you owe state income taxes or face a state levy, filing bankruptcy immediately halts their collection efforts too.
A bankruptcy attorney can help clients avoid losing vehicles and bank balances to the state through the same legal strategies used against the IRS. The protection is equally powerful and just as enforceable under Oklahoma law.
Rebuilding Credit After Bankruptcy
Many clients worry that filing for bankruptcy will ruin their credit forever. That isn’t true. In most cases, people filing bankruptcy already have poor credit due to missed payments, judgments, or high debt.
Once the bankruptcy is completed, their debt-to-income ratio improves, and many start rebuilding quickly. Using secured credit cards, making on-time payments, and keeping balances low can raise a score within months.
Clients who use bankruptcy law to deal with tax problems often come out stronger on the other side—not just financially, but emotionally as well.
Avoiding Future Tax Problems
Stopping an IRS levy through bankruptcy is powerful, but staying out of trouble requires follow-through. Clients must stay current with tax filings, make estimated payments if self-employed, and adjust withholding if needed.
In Chapter 13, missing a tax return can result in case dismissal. With a bankruptcy attorney, bankruptcy law offers a fresh start, not a free ride. Maintaining compliance afterward is key to preserving the benefits gained and avoiding new levies down the road.
Reach Out Today
At Deborah Brooks & Associates, P.C., I work with clients every day to file timely petitions, apply the automatic stay, and use bankruptcy law to gain control over what once felt like an impossible situation. I’m proud to serve Western Oklahoma. Call today.