Filing Bankruptcy on an IRS Lien

In case you have taxes or even an Internal Revenue Service lien, you aren’t barred from filing for bankruptcy. Actually, portions of this U.S. Bankruptcy code deal especially with taxation. Should you hold an IRS lien, but there is a good possibility the lien will still be waiting for you if your bankruptcy case is payable. The code is intended to make you pay the lien, if you’re in bankruptcy or not.

Back Taxes and Liens

If you’re planning to file bankruptcy, then it’s important to note the difference between back taxes and exemptions. Back taxation are believed the money you owe to the government in taxes never paid. You do not have to have a lien to get taxes, and such back taxes could be as simple as a shortfall of 100 of a national income tax return three years ago. A lien results when the IRS joins your tax debt into your property, usually your residence, as a way of securing your debt. Additionally, it provides the IRS the legal right to your house, and is sometimes a precursor to selling the home to meet the debt.

The Way Liens Happen

The IRS periodically reviews tax liabilities; if you’ve got one, you’ll receive what is called a Notice and Demand for Payment. This will tell you what you owe. If you either dismiss this letter, or talk to the IRS but cannot completely repay what you owe, in 10 days of receiving the letter, this may trigger a lien. The lien doesn’t start right away. For the lien to be valid, the IRS must file the motion depending on your state’s property laws. For instance, in California, the IRS would record the motion with your county tax clerk.

A Lien’s Validity in Bankruptcy

A federal tax lien is legitimate only when it was registered before you filed for bankruptcy. After a lien is made, the federal bankruptcy code admits this as guaranteed debt, meaning it’s treated just like debt with collateral . Even the lien won’t go away. The IRS’s lien is given a top priority in both Chapter 7 and Chapter 13 proceedings. Even if you go through Chapter 7–that wipes out all of your debts–that the lien does not go away.

Paying Liens in Bankruptcy

Since federal tax exemptions are considered secured debt and receive priority in bankruptcy, it’s likely you will be paying at least some, if not all, of it back. In Chapter 7, this likely means that the sale of property such as your home and other resources to satisfy the lien. In Chapter 13, in which you repay some component of everything you owe your creditors, the bankruptcy trustee must make every endeavor to create a plan which pays your priority claims in full, which may include the lien. When the program is finalized, the IRS is bound into it, even if it does not receive whole payment.

Discharging Liens

While the bankruptcy code is able to help you release back taxes, it may offer little assistance for IRS liens. Liens are intended to get the debtor to repay, regardless of the conditions. The only way to be rid of a lien would be to repay the money owed, whether you’re going through bankruptcy or not. There are means to appeal and get rid of the lien, but these are often as a result of procedural conditions. A lawyer who specializes in bankruptcy or tax law may tell you when you that the IRS violated your rights or its own processes during the lien procedure.

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