IRS Layoffs, Credit Card Rate Caps, and What You Need to Know Now

Tax season arrived in 2025 with unprecedented turmoil at the IRS. More than 12,000 employees have been laid off so far this year, raising a simple question: Do you still owe your taxes? The short answer is yes. The longer answer involves understanding what enforcement looks like when the agency tasked with collecting revenue operates at reduced capacity.

Your tax obligations haven't changed. The IRS's ability to chase you might have.

What IRS Staffing Cuts Mean for Taxpayers

The IRS employed roughly 79,000 full-time workers before the 2025 cuts. Losing 12,000 people—about 15% of the workforce,affects operations in predictable ways. Expect longer wait times on phone lines (already averaging 13 minutes in 2024), delayed refund processing, and fewer audits of complex returns.

But here's what doesn't change: your legal obligation to file and pay. The IRS can still issue liens, levy bank accounts, and garnish wages. Those enforcement mechanisms run through automated systems that don't require many humans. What suffers is human assistance,answering questions, resolving errors, negotiating payment plans.

If you owe back taxes, this is not the time to assume the agency will forget about you. The IRS collects through third-party channels: your employer withholds, banks report interest, investment firms send 1099s. When automated matching catches a discrepancy, you get a notice. Ignoring it triggers penalties that compound at 0.5% per month, plus interest currently around 8% annually.

What To Do If You Owe

File on time, even if you can't pay in full. Filing late adds a 5% monthly penalty,ten times the failure-to-pay penalty. Once you file, apply for an installment agreement online at IRS.gov/OPA. The automated system approves most plans under $50,000 without human review.

If you owe more than you can realistically repay, look into an Offer in Compromise. The IRS accepts about 40% of offers, settling debts for less than the full amount when they determine you can't pay. Processing these takes longer now,expect 8-12 months instead of the usual 6.

Tax debt doesn't disappear in bankruptcy easily. Chapter 7 can discharge income taxes that meet specific criteria: the return was due at least three years ago, you filed at least two years ago, and the IRS assessed the tax at least 240 days before filing. Most recent tax debt survives bankruptcy. But if you're drowning in credit card debt and back taxes, Chapter 13 bankruptcy lets you include priority tax debt in a manageable 3-5 year repayment plan.

Congress Wants To Cap Credit Card Rates at 10%

Senators Bernie Sanders and Josh Hawley introduced bipartisan legislation in March 2025 to cap credit card interest rates at 10% for five years. The average credit card APR hit 24.37% in February 2025, according to LendingTree. For cardholders carrying balances, that's punishing.

The proposal faces steep odds. Credit card companies argue the cap would force them to restrict credit access, denying cards to lower-income applicants. They claim higher default risk requires higher rates. Consumer advocates counter that banks made $176 billion in interest and fees in 2023,plenty of margin to work with.

Past attempts at federal rate caps failed. A similar 2009 bill never reached a vote. State-level caps exist in Arkansas (17%) and a few others, but national banks operate under federal regulations that preempt state limits.

What This Means For Your Debt Right Now

Even if the bill passes,a significant if,it wouldn't take effect immediately. Legislative timelines stretch across months. You need solutions today.

If you're paying 24% interest on $15,000 in credit card debt, your minimum payments barely cover interest. At $450/month, you'd take 56 months and pay $10,200 in interest under current rates. A 10% cap would cut that to $3,300. But that's hypothetical.

Your real options now: balance transfer cards (0% intro APR for 15-21 months, but you need decent credit), debt consolidation loans (typically 8-15% APR for qualified borrowers), debt management plans through credit counseling (which can negotiate rates down to 8-11%), or bankruptcy if debt exceeds what you can repay in 3-5 years.

Chapter 7 bankruptcy discharges most credit card debt in 4-6 months. If you earn less than your state's median income (varies by household size) and have little non-exempt property, you likely qualify. Check your eligibility with our free means test screening,it takes about 5 minutes and shows whether Chapter 7 could eliminate your credit card debt.

Medical Debt Leaves Credit Reports This Year

The three major credit bureaus agreed to remove medical debt from credit reports starting in 2025. This affects roughly 43 million Americans who have medical collections on their reports.

Specifically: paid medical collections disappeared immediately. Unpaid medical debt under $500 is being removed. Debt above $500 now has a one-year waiting period before appearing on reports (up from six months). This gives you time to dispute errors or arrange payment without credit score damage.

But here's the catch: removing medical debt from your credit report doesn't erase what you owe. Hospitals and collection agencies can still sue you. They can still garnish wages if they win a judgment. Your credit score may improve, but the debt remains collectible.

If You're Being Sued For Medical Debt

Respond to the lawsuit. Most defendants ignore medical debt suits, leading to default judgments. Once collectors have a judgment, they can garnish up to 25% of your disposable income in most states (less in some).

Negotiate before trial. Hospitals often settle for 30-50% of the balance. Collection agencies paid pennies for your debt and will accept less than face value. Get any settlement in writing before paying.

Consider bankruptcy if medical debt is part of a larger debt crisis. Chapter 7 discharges medical bills completely. If you underwent surgery that left you with $80,000 in bills and you're also behind on credit cards and a car loan, bankruptcy might be your cleanest path to stability. Medical debt is one of the most common reasons people file,you're far from alone.

Student Loan Data Security Concerns

The Department of Government Efficiency (DOGE) gained access to federal student loan data in early 2025, affecting more than 40 million borrowers. The access includes names, addresses, Social Security numbers, loan balances, and payment history.

Data breaches at federal agencies happen. The Office of Personnel Management breach in 2015 exposed 21.5 million records. Veterans Affairs has had multiple incidents. More access points mean more vulnerability.

Protect Yourself

Freeze your credit with all three bureaus (Equifax, Experian, TransUnion). Freezes are free and stop new accounts from being opened in your name. You can unfreeze instantly when you need to apply for credit.

Monitor your Federal Student Aid account at StudentAid.gov. Check monthly for unauthorized changes to your contact info, bank details, or loan servicer. Set up email alerts.

If your identity is stolen, file a report at IdentityTheft.gov. The FTC generates a recovery plan and pre-fills dispute letters for you. Act within days of discovering fraud,speed limits damage.

Student loans don't typically disappear in bankruptcy. They require an "undue hardship" showing, which courts interpret strictly. But if student loans pushed you into default on other debts, bankruptcy can discharge those other obligations and free up cash for student loan payments.

The CFPB Operating on Reduced Authority

The Consumer Financial Protection Bureau faced major changes in February 2025. While the agency hasn't shut down, its enforcement work paused temporarily. The CFPB handles complaints against banks, credit card companies, debt collectors, and mortgage lenders.

If the CFPB returns to full operation with reduced authority, you'll still have state-level consumer protection agencies. Most states have banking regulators and attorneys general who enforce consumer protection laws. Your rights under the Fair Debt Collection Practices Act (FDCPA) and Fair Credit Reporting Act (FCRA) remain intact,those are federal laws enforced through private lawsuits and Department of Justice action.

What To Do If a Debt Collector Violates Your Rights

Document everything. Save voicemails, emails, letters. Note dates and times of calls. Debt collectors cannot call before 8am or after 9pm, cannot threaten arrest (they can't arrest you for debt), and cannot discuss your debt with third parties.

Send a written cease communication request via certified mail. The FDCPA requires collectors to stop contacting you after receiving this, with limited exceptions (to inform you they're suing or ceasing collection). Use this when dealing with old debt past your state's statute of limitations,if they can't sue, make them stop calling.

Sue for violations. The FDCPA allows you to recover up to $1,000 in statutory damages per violation, plus attorney fees. Many consumer rights lawyers work on contingency,they get paid from the settlement, not from you. Collectors settle quickly when they've clearly violated the law.

How To Respond To Rapid Policy Changes

Policy uncertainty makes planning harder, but your core strategy stays consistent: understand what you owe, know your rights, and take action before creditors force your hand.

If you're behind on multiple debts, prioritize by consequence. Secured debt (mortgages, car loans) comes first,you lose the collateral. Tax debt second,the IRS has extraordinary collection powers. Unsecured debt (credit cards, medical bills) last,these have the fewest immediate consequences and the most negotiating room.

Track everything. Create a spreadsheet: creditor names, balances, interest rates, minimum payments, last payment date, statute of limitations expiration date (typically 3-6 years depending on your state). This clarity helps you make decisions. Seeing $47,000 in credit card debt across eight cards at 24% APR makes the case for bankruptcy clearer than the vague sense that you're drowning.

Get free help. Nonprofit credit counseling agencies review your finances and suggest options. They offer debt management plans (consolidating payments and negotiating reduced interest) or refer you to bankruptcy if that's your best option. We partner with Cambridge Credit Counseling for DMP referrals. If bankruptcy makes more sense, you can start your free Chapter 7 filing with us,our AI assistant Zero walks you through the forms, then an attorney reviews before you file.

What You Can Control

You can't control IRS staffing levels or whether Congress caps credit card rates. You can control how you respond to the debt you have today.

Start by getting current information. Your credit report is free annually from each bureau at AnnualCreditReport.com. Your tax account transcript is free at IRS.gov. Your student loan details are at StudentAid.gov. Pull all three this week.

Then make a decision. If debt is manageable with belt-tightening and time, create a payoff plan. If it's manageable only with professional negotiation, contact a credit counselor. If the math doesn't work,if you can't pay what you owe in 3-5 years,bankruptcy might be your fastest route to stability.

Chapter 7 bankruptcy discharges most unsecured debt in 4-6 months. Chapter 13 creates a court-supervised 3-5 year payment plan for what you can afford, then discharges the rest. Both stop collections immediately when you file. Both give you a defined finish line.

Disclaimer: This article provides educational information about debt, taxes, and bankruptcy. It is not legal or financial advice. Consult a licensed attorney or financial advisor for guidance specific to your situation.