How to Resolve IRS Debt Without Bankruptcy

Introduction: There’s a Better Way Than Bankruptcy

If you’re overwhelmed by IRS debt, bankruptcy might seem like the only way out. But in many cases, you can resolve IRS tax debt without filing for bankruptcy — and avoid the long-term consequences that come with it.

Bankruptcy should be the last resort — not the first plan.

In this guide, we’ll walk through proven alternatives to bankruptcy that work for many Orange County taxpayers, including payment plans, Offers in Compromise, hardship relief, and more.

🧠 Why People Consider Bankruptcy for IRS Debt

Common reasons include:

• Wage garnishment or levies
• Years of unfiled returns
• Balances over $50,000
• Pressure from the IRS or private collectors
• Fear of asset seizure

But before jumping to bankruptcy, understand your other options — many of which offer relief without the long-term damage to your credit and finances.

🚫 What Bankruptcy Doesn’t Always Solve

Contrary to popular belief, not all IRS debt is dischargeable in bankruptcy.

Requirements for IRS debt to be discharged:

• Taxes must be income-based
• Debt must be at least 3 years old
• Return must have been filed at least 2 years ago
• Assessment must be 240+ days old
• No fraud or tax evasion involved

If any of these conditions aren’t met, bankruptcy won’t wipe out the tax debt.

✅ 5 Proven Ways to Resolve IRS Debt Without Bankruptcy

✅ 1. Set Up an Installment Agreement

This is the IRS’s version of a payment plan.

Types:

• Guaranteed Installment Agreement (under $10,000)
• Streamlined Installment Agreement (under $50,000)
• Partial Pay Agreement (for those who can’t afford full repayment)

✅ Stops collection actions
✅ No need to file bankruptcy
✅ Helps rebuild compliance

👉 FTB Offer in Compromise vs Installment Agreement – Which Is Better?

✅ 2. Submit an Offer in Compromise (OIC)

Settle for less than what you owe if you can prove:

• You cannot pay in full
• Your offer reflects the most the IRS can reasonably collect
• You are in full filing compliance

✅ IRS settles debts for pennies on the dollar in qualified cases
✅ Stops levies and garnishments during review
✅ Prevents the need for bankruptcy

👉 How Much Will the IRS Usually Settle For?

✅ 3. Qualify for Currently Not Collectible (CNC) Status

If paying anything right now would create a financial hardship, the IRS may:

• Pause collections
• Stop sending notices
• Review your situation annually

✅ No payments required
✅  Protects wages and bank accounts
✅ Preserves options for future settlement

✅ 4. Request Penalty Abatement

Penalties can make up 30–50% of your balance. If you qualify for first-time abatement or reasonable cause, the IRS may remove them.

✅ Reduces total balance owed
✅ May make Offer in Compromise more successful
✅ Can be requested by your CPA without court involvement

✅ 5. File Corrected or Missing Returns

Sometimes, the tax debt is inflated due to:

• IRS substitute returns
• Missing deductions or credits
• Incorrect income reporting

✅ Filing or amending returns can dramatically reduce your balance
✅ Required before applying for any resolution program

👉 How to Get Back Into Compliance with the FTB (IRS process is similar)

🛑 What NOT to Do

• Don’t ignore IRS letters
• Don’t use cash advance or payday loans to pay IRS balances
• Don’t wait until garnishment begins
• Don’t submit partial payments without a plan — it won’t stop enforcement

🧭 How Boulanger CPA Helps Orange County Taxpayers

We help individuals and families in Irvine, Anaheim, Santa Ana, Fullerton, and beyond:

• Review IRS account transcripts
• File or amend tax returns
• Submit Offers in Compromise and Installment Agreements
• Stop garnishments and levies
• Help you avoid bankruptcy with a smarter plan

📞 Call 657-218-5700
🌐 www.orangecounty.cpa

Frequently Asked Questions

📣 About the Author

Marc Boulanger, CPA is the founder of Boulanger CPA and Consulting PC, based in Orange County, California.

With over a decade of experience helping individuals and businesses resolve serious IRS and State tax issues, Marc specializes in tax resolution strategies including Offers in Compromise, wage garnishment relief, and back tax compliance.

He is licensed as a Certified Public Accountant in both California and Oklahoma, and has a proven track record of helping clients settle complex tax debts and regain financial stability.

📍 Learn more at www.orangecounty.cpa or call (657) 218-5700.