What About Tax Liens?

Filing Chapter 7 bankruptcy may wipe out certain tax liabilities (not all of them) but even so, tax liens that were already filed continue to survive the bankruptcy discharge.  The tax lien continues to attach to all the assets that you owned at the time you filed.  It does not attach to things you acquire after you file.  So, are there any actions you can take to deal with the lien? Yes.

One option is a “chapter 20”—that is what the bankruptcy world calls a Chapter 7 case followed by a Chapter 13 case.  After discharging debt in a Chapter 7, filing Chapter 13 to work out a plan to pay back a tax lien over 5 years is an option.  When there is no way to satisfy the lien in one lump sum payment, payment over time is a widely accepted way to satisfy the lien.

Another option is to do nothing at all.  What are the assets that the lien is attached to? Do those assets have any real value? Can you live without them and get new ones after bankruptcy? This is a very case-specific analysis about your own “stuff” and what to do with it.  Maybe calling the IRS to “come on down” and get your stuff means they never will.

Finally, the IRS has procedures to negotiate offers to settle up the tax lien and get it released.   Go to www.irs.gov and get “Pub 1450” for more information.  Make an offer for a lien release, at the value of the assets.  Don’t overvalue—a 5 year old couch is not worth much.  If the IRS agrees to release, remember that they will issue the release to you, but it is up to you to get it recorded in the public record and that last step is very important.

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