Can I file an offer in compromise and a bankruptcy case at the same time?

No. Internal Revenue Manual 5.8.10.2.1, revised July 24, 2024, states that the IRS will not consider an offer in compromise under its administrative offer procedures while a taxpayer is in bankruptcy, and that an offer submitted while the taxpayer is in bankruptcy is returned as non-processable. A return is not a rejection and carries no appeal right. The same subsection states that even if only one spouse is in bankruptcy, the offer will be returned as non-processable. A joint offer involving a spouse in bankruptcy requires separate review; this should not be read as a categorical bar to every separate offer by the other spouse.

Is bankruptcy or an offer in compromise cheaper to start?

The government fees differ in kind, not just in size. A Chapter 7 case costs $338 to file and a Chapter 13 case costs $313, the totals the U.S. Bankruptcy Court for the District of Maryland prints, sourced to the Bankruptcy Court Miscellaneous Fee Schedule effective December 1, 2023. An offer costs a $205 application fee plus 20 percent of a lump sum offer or the first periodic payment, and both are waived on Low-Income Certification. The application fee and initial offer payment serve different purposes; neither guarantees acceptance. Attorney fees are separate and are quoted on consultation.

Which one stops the collection clock?

Both can suspend it under different statutes. An installment agreement in effect generally does not suspend it, but a pending request, rejection, termination, or appeal can. 26 U.S.C. 6503(h) suspends the assessment and collection periods during a bankruptcy case, plus 60 days for assessment and six months for collection. For an offer, 26 U.S.C. 6331(k)(1) bars levy while the offer is pending, for 30 days after rejection, and during an appeal, and 6331(k)(3)(B) and (i)(5) suspend the collection period for the time levy is prohibited. 26 U.S.C. 6331(k)(2)(C) does not carry that suspension for an installment agreement. Where the collection statute is close to running out, that difference can matter more than the settlement number.

Does either one clear a federal tax lien?

Neither clears it on its own schedule. A discharge is personal, so a notice of federal tax lien filed before the petition continues to encumber prepetition property, including exempt property, under 11 U.S.C. 522(c)(2)(B) and 11 U.S.C. 524(a). An accepted offer is different in kind: Form 656 states that the liens for the listed periods and taxes will generally be released within 45 days after the final payment is received and verified, which means the release follows performance of the offer terms, not acceptance. The IRS may file a lien while an offer is under consideration.

How do you decide between them?

The choice depends on tax dischargeability, other debts, income, assets, return compliance, and collection risk. Bankruptcy may provide relief that an administrative offer cannot, while an offer may resolve liabilities that would survive bankruptcy. Missing returns and current-payment requirements must be addressed before an offer. Delaying a filing can change the analysis but can also increase collection exposure.

Instrument comparison

Bankruptcy vs offer in compromise.

An offer in compromise asks the IRS to settle a tax balance for less than the full amount. Bankruptcy can discharge qualifying tax debt and address other debts; Chapter 13 can also provide a payment plan for taxes that survive discharge. The two are not available at the same time.

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Side by side

What is the difference between bankruptcy and an offer in compromise?

One is a court case that reaches every debt and discharges the tax years that qualify. The other is an administrative settlement of federal tax alone.

Bankruptcy requirements and available options.
Question	Bankruptcy	Offer in compromise
Eligibility	Chapter 7 runs through the means test of 11 U.S.C. 707(b). Chapter 13 requires an individual with regular income inside the 11 U.S.C. 109(e) debt limits. In Chapter 13, 11 U.S.C. 1308(a) requires all returns for taxable periods ending during the four-year period ending on the petition date to be filed by the day before the first scheduled 341 meeting.	Administrative offers may be based on doubt as to collectibility, doubt as to liability, or effective tax administration. Requirements differ by ground. Form 656 offers require filing and payment compliance; the IRS generally does not consider administrative offers during an open bankruptcy.
Government cost	$338 to file a Chapter 7 case and $313 to file a Chapter 13 case, the totals the U.S. Bankruptcy Court for the District of Maryland prints. The Bankruptcy Court Miscellaneous Fee Schedule, effective December 1, 2023, supplies the $78 administrative component and the $15 Chapter 7 trustee fee.	A $205 application fee, plus 20 percent of a lump sum cash offer or the first periodic payment. Both are waived on Low-Income Certification and for a doubt-as-to-liability offer.
Timeline	A Chapter 7 case is typically measured in months from filing to discharge. A Chapter 13 plan runs three to five years, and 11 U.S.C. 1328(a) conditions the discharge on completing all payments under the plan.	IRS evaluation is measured in months and can run past a year. 26 U.S.C. 7122(f) provides that an offer is deemed accepted if the Secretary does not reject it within 24 months of submission, excluding periods when the liability is in dispute in a judicial proceeding.
Collection statute	26 U.S.C. 6503(h) suspends the 26 U.S.C. 6501 and 6502 periods while the case bars assessment or collection, and adds 60 days for assessment and six months for collection. The clock the client is waiting out gets longer.	26 U.S.C. 6331(k)(1) bars levy while an offer is pending, for 30 days after rejection, and during an appeal of that rejection. 26 U.S.C. 6331(k)(3)(B) applies rules similar to 6331(i)(5), and (i)(5) suspends the 6502 collection period for the time levy is prohibited. An installment agreement under 6331(k)(2)(C) does not suspend that period.
Which years it addresses	Only the years that pass the tests are discharged. Priority years under 11 U.S.C. 507(a)(8) are paid in full through a Chapter 13 plan under 11 U.S.C. 1322(a)(2), and survive a Chapter 7 under 11 U.S.C. 523(a)(1)(A).	An accepted offer resolves the included liabilities under its terms. Compare the offer amount and conditions with the treatment each tax year would receive in bankruptcy.
Liens	A discharge does not release a notice of federal tax lien filed before the petition. 11 U.S.C. 522(c)(2)(B) and 11 U.S.C. 524(a), with Long v. Bullard, 117 U.S. 617 (1886), leave the lien attached to prepetition property, including exempt property.	The IRS does not release a lien until the offer terms are satisfied. Form 656 states that on an accepted offer the tax liens for the periods and taxes listed will generally be released within 45 days after the final payment is received and verified. The IRS may file a lien while the offer is under consideration.
Non-tax debt	Reaches credit cards, medical debt, deficiency claims, and most judgments in the same case. This is often the fact that decides the question.	Reaches nothing but the federal tax listed in the offer.
Forward conditions	Chapter 7 has no comparable five-year offer-compliance condition, although case duties, surviving debts, and liens may remain. A Chapter 13 debtor must perform the plan for three to five years, and 11 U.S.C. 1328(a) conditions the discharge on completing every payment.	Form 656 requires the taxpayer to timely file and timely pay for the five year period after acceptance, and bars another offer during that period. Default revives the full liability less payments made, plus accrued penalties and interest, and permits a new lien filing.

Fees and thresholds depend on the applicable court and IRS schedules.

Fees and timing.

Filing fees. The U.S. Bankruptcy Court for the District of Maryland prints $338 to file a Chapter 7 case and $313 to file a Chapter 13 case. The Bankruptcy Court Miscellaneous Fee Schedule, effective December 1, 2023, supplies the $78 administrative fee charged in Chapter 7, 12, and 13 cases and the $15 Chapter 7 trustee fee under 11 U.S.C. 330(b)(2).

Offer fees. The IRS charges a $205 application fee with an offer, plus 20 percent of the total offer amount with a lump sum cash offer or the first periodic payment with a periodic offer. Both are waived on Low-Income Certification, and a doubt-as-to-liability offer carries neither. Those figures come from the Form 656-B booklet, revision 4-2026.

The 24-month rule. 26 U.S.C. 7122(f) provides that an offer is deemed to be accepted if the Secretary does not reject it within 24 months of the date it is submitted, and that any period during which the tax liability is in dispute in a judicial proceeding is not counted. That is a default rule about the government’s delay, not a settlement schedule to plan around.

Bankruptcy Court Miscellaneous Fee Schedule
District of Maryland filing fees
IRS offer in compromise
IRS Form 656-B offer in compromise booklet
26 U.S.C. 7122
11 U.S.C. 528

Collection periods, liens, and timing.

The IRS will not process an offer during a bankruptcy. Internal Revenue Manual 5.8.10.2.1, revised July 24, 2024, states that the IRS will not consider an offer in compromise under its administrative offer procedures while a taxpayer is in bankruptcy. If an administrative offer is submitted while the taxpayer is in bankruptcy, the offer is returned as non-processable; the return is not a rejection and gives no appeal right. The same subsection states that even if only one spouse is in bankruptcy, the offer will be returned as non-processable. The manual also states when the door reopens: an administrative compromise can be considered after a Chapter 7 debtor receives a discharge, and in Chapter 11, 12, and 13 cases it will not be considered until the taxpayer completes the payments under the plan or the case is dismissed. That sequence, not simultaneity, is how the two instruments combine.

Bankruptcy and an offer can suspend the collection statute. An installment agreement in effect generally does not, but its request, rejection, termination, and appeal periods can. 26 U.S.C. 6503(h) suspends the periods in 26 U.S.C. 6501 and 6502 while the bankruptcy case prohibits assessment or collection, plus 60 days for assessment and six months for collection. On the offer side, 26 U.S.C. 6331(k)(1) bars levy while an offer is pending, for 30 days after a rejection, and during an appeal of that rejection; 6331(k)(3)(B) applies rules similar to 26 U.S.C. 6331(i)(5); and (i)(5) suspends the 6502 collection period for the period during which levy is prohibited. 26 U.S.C. 6331(k)(2)(C) carries the levy bar for an installment agreement without that collection-period suspension.

Liens behave differently in each. In bankruptcy the lien survives the discharge. 11 U.S.C. 524(a) enjoins collection of a discharged debt as a personal liability of the debtor, which leaves the in rem remedy intact, and 11 U.S.C. 522(c)(2)(B) makes exempt property answerable to a tax lien, notice of which is properly filed. Long v. Bullard, 117 U.S. 617 (1886), is the original statement of that rule. In an accepted offer the release follows performance: Form 656 states that the tax liens for the periods and taxes listed in Section 1 will generally be released within 45 days after the final payment has been received and verified. The IRS may file a notice of federal tax lien while an offer is under consideration.

The offer imposes five years of forward conditions. Form 656 requires the taxpayer to timely file and timely pay for the five year period after acceptance, and to request no other offer during that period. A default revives the full liability less payments made, plus accrued penalties and interest, and permits a new lien filing. A Chapter 7 discharge imposes no comparable forward condition. A Chapter 13 plan imposes a different one: three to five years of plan payments, with 11 U.S.C. 1328(a) conditioning the discharge on completing all of them.

The years each instrument reaches are not the same set. An offer compromises every year included in it for one sum, whether or not those years would have been discharged. Bankruptcy discharges only the years that clear the tests, pays priority years in full through a Chapter 13 plan under 11 U.S.C. 1322(a)(2), and leaves priority years owing after a Chapter 7 under 11 U.S.C. 523(a)(1)(A). Which years fall where is answered from the transcripts on the tax debt in bankruptcy page, not from this comparison.

IRM 5.8.10, offer in compromise special case processing
26 U.S.C. 6503
26 U.S.C. 6331
11 U.S.C. 522
11 U.S.C. 524
11 U.S.C. 523

Choosing a course of action.

Bankruptcy may fit when dischargeable tax and other debt, available exemptions, and the need for collection protection support it. Eligibility, assets at risk, return compliance, lien treatment, and any limits on the stay must be reviewed together.

An offer may fit when liabilities are unlikely to be discharged and the taxpayer meets the applicable offer requirements. Required returns and current payments must be addressed. Asset equity and collection potential can affect both eligibility and the acceptable amount.

Sometimes the answer is neither yet. A later filing date may change discharge treatment, but delay can also mean continued interest, collection, and asset risk. Waiting requires a case-specific assessment. That call is made on the transcripts, in a consultation.

Law Office of Alexander Powell, PLLC files consumer Chapter 7 and Chapter 13 cases in the District of Maryland. Federal IRS representation, including an offer in compromise, may extend nationwide. Send a high-level summary through the bankruptcy consultation request.

District of Maryland court locations
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Questions

Common questions about the two paths.

Can I file an offer in compromise and a bankruptcy case at the same time?
No. Internal Revenue Manual 5.8.10.2.1, revised July 24, 2024, states that the IRS will not consider an offer in compromise under its administrative offer procedures while a taxpayer is in bankruptcy, and that an offer submitted while the taxpayer is in bankruptcy is returned as non-processable. A return is not a rejection and carries no appeal right. The same subsection states that even if only one spouse is in bankruptcy, the offer will be returned as non-processable. A joint offer involving a spouse in bankruptcy requires separate review; this should not be read as a categorical bar to every separate offer by the other spouse.
Is bankruptcy or an offer in compromise cheaper to start?
The government fees differ in kind, not just in size. A Chapter 7 case costs $338 to file and a Chapter 13 case costs $313, the totals the U.S. Bankruptcy Court for the District of Maryland prints, sourced to the Bankruptcy Court Miscellaneous Fee Schedule effective December 1, 2023. An offer costs a $205 application fee plus 20 percent of a lump sum offer or the first periodic payment, and both are waived on Low-Income Certification. The application fee and initial offer payment serve different purposes; neither guarantees acceptance. Attorney fees are separate and are quoted on consultation.
Which one stops the collection clock?
Both can suspend it under different statutes. An installment agreement in effect generally does not suspend it, but a pending request, rejection, termination, or appeal can. 26 U.S.C. 6503(h) suspends the assessment and collection periods during a bankruptcy case, plus 60 days for assessment and six months for collection. For an offer, 26 U.S.C. 6331(k)(1) bars levy while the offer is pending, for 30 days after rejection, and during an appeal, and 6331(k)(3)(B) and (i)(5) suspend the collection period for the time levy is prohibited. 26 U.S.C. 6331(k)(2)(C) does not carry that suspension for an installment agreement. Where the collection statute is close to running out, that difference can matter more than the settlement number.
Does either one clear a federal tax lien?
Neither clears it on its own schedule. A discharge is personal, so a notice of federal tax lien filed before the petition continues to encumber prepetition property, including exempt property, under 11 U.S.C. 522(c)(2)(B) and 11 U.S.C. 524(a). An accepted offer is different in kind: Form 656 states that the liens for the listed periods and taxes will generally be released within 45 days after the final payment is received and verified, which means the release follows performance of the offer terms, not acceptance. The IRS may file a lien while an offer is under consideration.
How do you decide between them?
The choice depends on tax dischargeability, other debts, income, assets, return compliance, and collection risk. Bankruptcy may provide relief that an administrative offer cannot, while an offer may resolve liabilities that would survive bankruptcy. Missing returns and current-payment requirements must be addressed before an offer. Delaying a filing can change the analysis but can also increase collection exposure.

Where the analysis goes next.

IRS tax debt in bankruptcy sets out the date tests and what counts as a return, and Chapter 13 and IRS back taxes covers the years that cannot be discharged. The offer in compromise hub and the collections hub cover the administrative side.

Tell me the years, the balance, and whether an offer is already pending.

Send a high-level summary. Do not send account numbers with the first request. The first consultation is free. Fees are quoted in writing after it.

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