Can an IRS Lien Be Avoided or Removed in Chapter 7 Bankruptcy?

Question from JT, Can an IRS Lien Be Avoided or Removed in Chapter 7 Bankruptcy?

Answer from AI:

When filing for Chapter 7 bankruptcy in the United States, dealing with an IRS lien on a home that has equity can be complex. Here’s a general explanation of the relevant laws and processes.

Understanding IRS Liens

An IRS lien is a legal claim by the government against your property when you fail to pay a tax debt. This lien can attach to all your assets, including your home. The lien ensures that the IRS gets paid before other creditors if you sell your property.

Chapter 7 Bankruptcy Overview

Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” involves the sale of a debtor’s non-exempt assets to pay off creditors. Certain debts can be discharged, meaning you are no longer legally required to pay them. However, some debts, like tax debts, are more challenging to discharge.

IRS Liens and Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, discharging an IRS lien on a home with equity involves several considerations:

• Dischargeable Tax Debts: Some tax debts can be discharged in Chapter 7 if they meet specific criteria, such as being more than three years old and having been assessed at least 240 days before filing for bankruptcy.
• Secured vs. Unsecured Debts: An IRS lien makes the tax debt a secured debt, meaning it is tied to your property. Even if the underlying tax debt is discharged, the lien may still remain on the property.
• Equity in the Home: If your home has equity, the IRS lien attaches to that equity. The bankruptcy trustee may sell the home to pay off the lien and other creditors.

Can the Lien Be Avoided or Removed?

Avoiding or removing an IRS lien in Chapter 7 bankruptcy is challenging but not impossible. Here are some potential steps:

1. Paying Off the Lien: One way to remove the lien is to pay off the tax debt in full. This can be done through a payment plan with the IRS.
2. Negotiating with the IRS: In some cases, you may be able to negotiate with the IRS to release the lien, especially if you can demonstrate financial hardship or if the lien is impairing your ability to pay other debts.
3. Exemptions: Certain exemptions may protect some of the equity in your home from being used to pay off the lien. However, this varies by state and the specifics of your case.

Legal Advice and Resources

Given the complexity of IRS liens and bankruptcy laws, it is crucial to consult with a legal professional who specializes in bankruptcy and tax law. They can provide personalized advice based on your specific situation.

For more information, you can refer to the following resources:

• Understanding a Federal Tax Lien – IRS
• Chapter 7 Bankruptcy Basics – U.S. Courts

Remember, while this information provides a general overview, each case is unique. Consulting with a legal professional is essential to navigate the specifics of your situation effectively.