Resolve IRS Debt Without Filing Bankruptcy
You Don’t Have to File Bankruptcy to Get IRS Relief
When you're drowning in back taxes, it might feel like bankruptcy is your only option. But in most cases, the IRS offers powerful alternatives that can resolve your tax debt without the long-term damage bankruptcy can cause.
In this post, we’ll show you exactly how to negotiate with the IRS, stop collections, and settle your tax bill—without ever filing for bankruptcy.
Why Avoid Bankruptcy?
While Chapter 7 or Chapter 13 bankruptcy can sometimes discharge tax debt, it’s rarely the best first move. That’s because:
- Not all IRS debt is dischargeable
- Bankruptcy stays on your credit report for 7–10 years
- Legal fees and court costs can be high
- It can pause—but not eliminate—collections in many cases
Instead, most taxpayers can qualify for better, less damaging resolution methods.
Option 1: Settle for Less with an Offer in Compromise
The IRS Offer in Compromise (OIC) program allows you to settle tax debt for less through an Offer in Compromise if:
- You can’t afford to pay in full
- You’re in compliance with recent tax filings
- You submit a detailed financial disclosure
The IRS uses a formula called Reasonable Collection Potential to calculate your offer amount.
Related: IRS Offer in Compromise – How to Settle for Less Than You Owe
Option 2: Stop Collections with Currently Not Collectible (CNC) Status
If you’re facing financial hardship and can’t make any payments, you may qualify for Currently Not Collectible status. This temporarily stops:
- Wage garnishments
- Bank levies, including ways to stop a California FTB bank levy
- IRS collection letters
It doesn’t erase your debt—but it pauses enforcement while you regain stability.
Related: How to Qualify for IRS Hardship Status (Currently Not Collectible)
Option 3: Affordable Monthly Payments with an Installment Agreement
If you don’t qualify for an OIC or CNC, the IRS often accepts Installment Agreements that let you pay off your tax debt over time—even at reduced amounts for certain cases.
You may be eligible for:
- Streamlined agreements with no financial disclosure
- Partial pay agreements based on ability to pay
- Flexible plans with lower monthly payments
Still, beware of defaulting on an IRS installment agreement, as it can trigger immediate collections again.
Option 4: Penalty Abatement
The IRS charges steep penalties for failure to file, failure to pay, and underpayment. But if you have a legitimate reason—such as illness, natural disaster, or reliance on bad advice—you may qualify for penalty abatement.
This doesn’t erase the tax, but it can reduce what you owe dramatically.
Related: Why the IRS Rejected Your Offer in Compromise
Option 5: Wait Out the IRS Collection Statute
In some cases, if you’re nearing the 10-year Collection Statute Expiration Date (CSED), it may make sense to protect your income and let the clock run out.
But be careful—certain actions like filing an Offer or entering bankruptcy toll the statute and give the IRS more time to collect.
That’s why you must stay compliant to resolve IRS debt instead of relying solely on the statute of limitations.
WHEN PAYROLL TAXES BECOME A CRITICAL ISSUE
Many small business owners struggle with payroll obligations. When payroll taxes become unmanageable, the IRS prioritizes aggressive collections and may hold owners personally responsible. Professional help becomes essential at this point.
Why Work with a Tax Resolution Firm?
At Boulanger CPA and Consulting PC, we help taxpayers in Orange County:
- Avoid bankruptcy by negotiating better IRS outcomes
- Stop levies and garnishments
- File Offers in Compromise and CNC applications
- Review transcripts to calculate CSED expiration
- Guide clients to find local IRS tax relief options that fit their unique situation
For deeper insights and real-life strategies, you can also learn more in our Defend What’s Yours book.
Call
(657) 218-5700
or schedule a confidential consult at
www.orangecounty.cpa
Virtual appointments and fast relief available.
Frequently Asked Questions
Is bankruptcy the only way to eliminate IRS tax debt?
No. While some tax debts may be discharged in bankruptcy, there are multiple IRS programs—such as Offer in Compromise, installment agreements, and Currently Not Collectible status—that can help you resolve your balance without bankruptcy.
What IRS programs can reduce or settle my tax debt?
The most common settlement program is the Offer in Compromise, which allows you to settle for less if you qualify. Other relief options include partial-pay installment agreements and penalty abatement requests.
Can I negotiate directly with the IRS without filing bankruptcy?
Yes. Taxpayers can apply directly for installment agreements or Offers in Compromise. However, professional help often improves your approval chances and ensures compliance with IRS requirements.
When does bankruptcy make sense for tax problems?
Bankruptcy may help if your tax debt meets specific criteria (older returns, assessed more than three years ago, no fraud). Even then, it should be compared carefully against IRS relief programs before making a decision.
What is Currently Not Collectible status?
Currently Not Collectible (CNC) status temporarily stops IRS collections when you can’t afford to pay. While interest and penalties continue to accrue, it protects you from levies and garnishments while your finances recover.
How do I know which option is best for me?
The right option depends on your income, assets, and overall financial situation. A tax professional can evaluate your eligibility for OIC, CNC, or installment agreements and compare them against bankruptcy as a last resort.
Does the California FTB offer alternatives to bankruptcy?
Yes. Like the IRS, the California Franchise Tax Board offers installment agreements and hardship status. Coordinating IRS and FTB resolutions ensures you don’t resolve one debt only to face aggressive collection from the other.
Can bankruptcy hurt my future finances more than an IRS program?
Yes. Bankruptcy significantly impacts your credit for years. In contrast, resolving through IRS or FTB programs protects your credit profile and avoids the long-term damage of a bankruptcy filing.
📣 About the Author
Marc Boulanger, CPA is the founder of Boulanger CPA and Consulting PC, a boutique tax resolution firm based in Orange County, California and trusted by high-income individuals and business owners across Southern California.
With over a decade of experience resolving high-stakes IRS and State tax matters, Marc brings strategic insight to complex cases involving wage garnishments, bank levies, unfiled returns, and six-figure tax debts. He is known for helping clients reduce or eliminate tax liabilities through expertly negotiated settlements and compliance plans.
Marc is a Certified Public Accountant licensed in California and Oklahoma and holds the designation of Certified Tax Representation Consultant. He is a member of the American Society of Tax Problem Solvers (ASTPS) — the national organization founded by the educators and practitioners who have trained thousands of CPAs, EAs, and tax attorneys in IRS representation strategy.
Every case is handled with discretion, proven methodology, and direct CPA-led representation — not call center scripts.
📍 Learn more at www.orangecounty.cpa or call (657) 218-5700.
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