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Bankruptcy will not solve your issues with IRS tax liens

| Sep 13, 2018 | blog

When people get into trouble, bankruptcy is often the last resort solution they turn to. Depending on an individual’s assets and income, either Chapter 7 or Chapter 13 bankruptcy could offer some form of relief. After all, bankruptcy provides an automatic stay against collection activity, even from the government.

For individuals who have substantial tax, it is common for the IRS to seek a lien against their real property if they failed to pay on that debt. People dealing with a federal tax lien on their home may wonder if bankruptcy proceedings can help them address the lien on their property if it is the result of federal tax debt. Unfortunately, in most cases, bankruptcy will not get rid of the tax lien on your property.

You can discharge some tax debts in bankruptcy

The law regarding federal taxes and bankruptcy is somewhat confusing. It is true that you can potentially discharge your income tax debts owed to the government in a bankruptcy filing. However, property taxes and certain other kinds of taxes will not receive a discharge when someone files for bankruptcy.

More importantly, the discharge that someone receives in a bankruptcy only applies to the legal obligation to repay the debt. It does not actually get rid of an existing tax lien on your property. While the debt, in theory, may no longer be subject to collection activity, if the lien existed prior to your filing bankruptcy, it will remain a lien against your property unless you pay the taxes owed.

Paying a tax lien is the only way to have it removed from a property

There’s a reason that people say that the only two certainties in life are death and taxes. The government almost always gets the money owed to it. Securing a lien against your property is one of the best ways for the government to ensure payment of an outstanding tax debt.

After all, even if you never make an attempt to pay, they will still receive payment in full when you sell the home. The lien must be paid before the property can transfer to a new owner. However, delays for long periods could result in the loss of your home. Your best option when dealing with tax liens is usually to negotiate payment. However, negotiating on your own behalf with the IRS could be quite nerve-wracking.

Working with a professional who has experience and handling tax liens can potentially benefit you significantly. In some cases, it may be possible to make other arrangements if you don’t have the ability to pay the tax lien in full immediately. It’s best to carefully review your financial and legal situation before you make any decisions regarding bankruptcy and tax liens on your property.