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Can a bankruptcy filing extinguish a secured IRS Tax Lien?

Asked about 2 years ago - Louisville, KY

A friend of mine owns a house (Value $700K) with two existing mortgages ($500K and $200K) and an IRS Tax Lien($200K+) filed against it. There is absolutely no equity above the two mortgages but she's under the impression that filing BK may get rid of the IRS Lien even though it's secured against the property. She hasn't yet filed the BK and really wants to do what ever it takes to keep the property but not sure what will happen to the IRS Tax Lien once she files the BK.

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Craig Dennison Robins

Reputation Level 13

Answered about 2 years ago. Bankruptcy Attorney in Woodbury, NY.

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Although many judgment liens can be removed by bringing a motion to avoid the judgment lien in a bankruptcy proceeding, federal tax liens are an exception.

A debtor cannot remove a federal tax lien in a bankruptcy case.

However, sometimes a debtor can work out a deal with the IRS to obtain a release of lien if the debtor can demonstrate that there is little or no equity to secure the lien, and the debtor is willing to turnover the value of equity to the IRS. Your friend should consult a tax attorney for further guidance on this.

For further info about bankruptcy and debts in general, please see my bankruptcy blog:

Bankruptcy Blog

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