IRS Tax Liens in Bankruptcy

This article is about IRS debts that are dischargeable in Bankruptcy but where the IRS has filed a lien.

The IRS frequently files tax liens on all property the taxpayer owns in the county where the taxpayer resides. 

Tax liens have a life of 10 years. They can be renewed after 10 years but usually are not.

PERSONAL PROPERTY AND CHAPTER 7

  • Outside of Bankruptcy, the IRS exempts $6,250 of household furniture and personal effects from levy. (26 U.S. Code 6334). The IRS is not in the business of selling used furniture.
  • The lien is only valid in the county where the taxpayer resided when the lien was filed.
  • If you lived in Lake County at the time the lien was filed and now live in Cook County the lien no longer applies
  • What do? Since the IRS is not going to come to home and sell your furniture: generally, do nothing and it will disappear!

REAL ESTATE (INCLUDING YOUR HOME) AND CHAPTER 7

  • The IRS can file a lien on all property of the taxpayer in the county they reside in. The filing of Chapter 7 may discharge certain IRS but the lien remains. The lien remains 10 years from the date of filing. The IRS seldom renews liens on house: but they can.
  • What to do? 
    • File Chapter 13. See below
    • Do nothing. The IRS does not foreclose on its lien. I have had a couple of clients who have told me that they don’t intend ever to sell their home or refinance. 

PERSONAL PROPERTY AND CHAPTER 13

The amount listed for personal property, cash, bank deposits, etc. will have to be paid. Usually, that is well under $1,000.

REAL ESTATE (INCLUDING YOUR HOME) AND CHAPTER 13

Certain IRS debts are not dischargeable and have to be paid in full. The following is how to deal with taxes that can be discharged.

  • The market value of the property is less than the mortgage balance;
  • After deducting the mortgage balance from the market value there is something left over but is less than the amount of the IRS lien; or
  • The equity exceeds the amount of the IRS lien.

Examples: (The market value of the home is $200,000 and the IRS lien for dischargeable taxes is $30,000)

  • The market value of the home is $200,000. The balance of the mortgage(s) is $210,000. The IRS lien can be eliminated and paid as an unsecured debt; maybe a dividend of 10%.
  • The market value of the home is $200,000. The balance of mortgage(s) plus other deductions we can show is $190,000. The Chapter 13 plan will have to pay $10,000 over the period of the plan and the balance of $20,000 to be paid as an unsecured debt.
  • The equity far exceeds $30,000. The Chapter 13 will have to pay $30,000 over the period of the plan.

What about the Homestead Exemption?

It cannot be used against an IRS lien. 

Lawyers who concentrate in Bankruptcy law know how to deal with IRS liens. If you have an IRS lien you should consult a lawyer: hopefully Robert J. Adams & Associates. Consultations are free and confidential.


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