Chapter 13 Bankruptcy Filings And IRS Liens

25 March 2015
 Categories: Law, Blog


Many of those who file for chapter 13 bankruptcy may wonder if lien stripping can be used to get rid of an IRS lien. Consumers' financial problems often stem from large debts to the Internal Revenue Service. This means that being able to strip an IRS lien could offer enormous financial improvements for many bankruptcy filers. 

Unfortunately, an IRS lien will usually stick with a taxpayer even after chapter 13 bankruptcy is filed. The Internal Revenue Code generally insists on getting tax liens paid off even by taxpayers who are bankrupt. However, in certain cases, you might find that your bankruptcy filing gets you out of a tax debt or IRS lien.

Understanding the difference between back taxes and IRS liens

There is an important distinction between back taxes and IRS liens. Back taxes simply consist of money you owe to the IRS that you haven't paid yet. However, the IRS will turn back taxes into a lien if they're ready to make a claim on your property to secure a debt that you owe to them.

An IRS lien is therefore a legal right that the IRS has to access your properly. While a bankruptcy filing can often discharge back tax debt, it is much more difficult to strip an IRS lien by filing for bankruptcy.

How IRS liens are created

The IRS regularly reviews unpaid back taxes and sends out Notice and Demand for Payment correspondence to taxpayers who are not paying off their debts. When taxpayers cannot pay the debts they owe, the IRS may decide to file a motion to claim a lien on your property.

An IRS lien is not valid unless this motion is appropriately filed according to the property laws in place in the taxpayer's state. 

Lien validity

Those who file for chapter 13 bankruptcy will probably not be able to have an IRS lien that is valid stripped. However, these federal tax liens can only be considered valid if they are created before the taxpayer's bankruptcy filing. Otherwise, the IRS is making claims on property that the taxpayer may not own any longer.

If the lien already existed when the taxpayer filed for bankruptcy, it will be considered a secured debt and a priority debt. Bankruptcy trustees must make all efforts possible to pay off priority debts in a chapter 13 bankruptcy.

The possibility of discharging IRS liens

Filing for bankruptcy can get taxpayers out of having to pay back taxes. However, getting out of an IRS lien is never a simple matter.

There are some ways to appeal an IRS lien. These will usually only be successful if there are some unique procedural circumstances that can overturn the priority status of an IRS lien. In some cases, an experienced bankruptcy attorney may be able to successfully fight an IRS lien in a chapter 13 bankruptcy. For more information, contact Travis A. Gagnier or a similar legal professional.