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Understanding the concept of choate

On Behalf of | Mar 28, 2018 | Tax Liens |

The word choate is one that Maryland residents might not be familiar with. If something is choate, it is considered to be justifiable against other claims. This concept generally comes into play when the IRS puts a lien on a person’s property for failing to pay an assessed tax debt in a timely manner. However, it is possible that other entities may have already moved to place a lien.

A federal lien is considered to be choate on the date that the tax is assessed. A state or local lien must be choate prior to that date to have the first right of collecting should a property be sold or otherwise liquidated. Furthermore, the state or local lien must specify who holds it, the property the lien applies to and the amount of the lien. Otherwise, it cannot be enforced ahead of the federal lien.

If a creditor puts a lien on a property, it is considered inchoate until a final judgment can be made. Therefore, it is possible that a creditor lien could take a position behind an IRS lien even if the creditor moved to attach a lien to property first. Determining who gets priority matters because a debtor may not be able to pay debts beyond what an asset is worth.

A failure to pay taxes may result in a lien being placed on real property or other assets. An attorney may be able to negotiate with the IRS or state tax authorities to have a lien removed. This may make it easier to liquidate a property for full market value or retain possession of it without the threat of government action. Liens may in some cases be removed if a taxpayer agrees to make installment payments.