It is difficult to predict exactly when or if the Internal Revenue Service of the United States might audit you, which could subject you to a rigorous financial examination. At Sawin & Shea, we sometimes encounter people who are filing for bankruptcy and worry whether doing so will trigger an IRS audit. So, let’s look at some common questions regarding audits and bankruptcy.

Does the IRS Audit People Who File for Bankruptcy?

The IRS has no stated policy that they will audit someone who files for bankruptcy and they don’t seem to target people who file. In fact, it’s even possible that the IRS avoids bankruptcy filers knowing these people will already be going through a process that looks at their assets, liabilities and debts. Remember, the IRS has limited resources and millions of people file for bankruptcy. About one of every 55 households files for bankruptcy each year, and there’s no way the IRS has the resources to audit them all.

Is the IRS Prohibited from Auditing People Who Have Filed for Bankruptcy?

Although bankruptcy places an automatic stay, or halt, to debtors contacting you and demanding payment, the stay does not apply to the IRS. Bankruptcy can’t stop an audit. Under our federal Bankruptcy Code, the IRS can still audit you if they wish, and you would be required to comply with their requests. If you’re dealing with an audit and a bankruptcy simultaneously, you’ll need the help of an experienced bankruptcy attorney who can help you sort through your financial situation and decide on the most beneficial path forward.

Who Is at The Highest Risk of Audit During Bankruptcy?

While bankruptcy itself doesn’t put you at a higher risk of being audited, the IRS could still initiate an audit for other reasons. Certain groups of people do seem to be more closely scrutinized by the IRS. This includes people whose jobs pay them in cash, those who receive cash tips from customers, and the owners of large and small businesses. Protect yourself by keeping careful records and contact a bankruptcy attorney if the IRS ever questions your income during bankruptcy.

Can Filing for Bankruptcy Protect Me from an Audit?

There is no stated rule or law that says bankruptcy will prevent an audit, but you are generally less likely to be audited if you are following the law and staying on top of your finances. Bankruptcy is a proactive and responsible choice that helps you get your finances in order, so if you are ever audited you’ll have the confidence to sail through it smoothly.

Sawin & Shea – Indianapolis Bankruptcy Attorneys

Filing for bankruptcy is not the end. It’s the beginning of a new financial life for you. The Indiana bankruptcy attorneys at Sawin & Shea can help you get rid of the overwhelming debt and advise you on life after bankruptcy.  We are here for you during this life-changing process. Please do not hesitate to call us today at 317-759-1483 for a free consultation. We are ready to help.