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Can the IRS put a lien on your 401K after filing bankruptcy?

San Tan Valley, AZ |

My husband and I filed bankruptcy in March 2011. We owed the IRs 17,200 in taxes. The taxes were included in the Chapter 13. I just found out that on July 19, 2012 the IRS put a lien on both my husband and my 401K with Wells Fargo. I did not receive any notice of this until I tried to take out a loan on my 401k this December due to my husband being in a car accident and I needed cash to pay bills.

Attorney Answers 5

Posted

The long and short of this comes down to "Ask your attorney". Lots of ifs here. Since you filed a Chapter 13 your attorney should continue to represent you for the length of your payment plan. Then the questions become: did the IRS file a claim? which year's taxes were in the claim? which year's taxes were in the lien?

This kind of issue should be resolved by your attorney as a part of his services to you. If the IRS has violated the bankruptcy stay your attorney should be eager to attack this issue as stay violations can include penalties for attorney's fees for enforcement.

The information given does not constitute a client/attorney relationship, it is only general advice. It applies only to the laws of the State of Illinois, or practice before the Federal courts in the State of Illinois.

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Posted

The IRS has a right to put liens on all property owned by a taxpayer. This issue is whether the Service is exempt from the Temporary Stay. If the IRS put the lien in motion before the Stay, my feeling is the Stay will not apply. If they started the lien , after the Stay, the Service may be in violation of the Stay. If you have a lawyer, he should contact the IRS to remove the lien. However, you may not be able to take a loan on your 401 k without getting the approval of the trustee. Best of luck.

This answer is provided by Manuel A. Juarez, Esq., El Abogado de Accidentes de Autos de California: 510-206-4492. El Abogado de Accidentes de Autos provides answers of a general context. These answers are not intended to form an attorney client relationship. El abogado de Accidentes de Autos y Lesiones Personales is licensed only in California. This information is good only in California and it is not to be taken as legal advice on car accidents, personal injury, divorce, bankruptcy or in any other type of situation. Esta respuesta es del Abogado de Accidentes de Autos y Lesiones Personales de Acidentes de carros, Manuel A. Juárez, 510-206-4492. Abogado Hispano de Accidentes, Divorcios, Abogado Latino de Accidentes, y Abogado de Acidentes de Oakland, Hayward, San Francisco, y California. Estas respuesta son solo para información general y no consisten en consejo legal sobre divorcios, mantención de esposas, mantención de hijos o bancarrotas. Las respuestas son comentarios legales que no forman una relación de abogado y cliente. Manuel Juarez, Esq., esta licenciado solo en el Estado de California.

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Posted

You really need to see an attorney. The reason is there are just too many variables for us to propertly give an answer. The biggest variable being what exactly was in the Chapter 13 plan.

The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here. Please visit my web site: www.avanesianlaw.com for more information about my services.

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Posted

Mr Juarez is on point here. I have seen this issue a number of times and was surprised at first to learn that a lien on your 401(k) will survive nearly indefinitely. Fortunately, it will only be able to be satisfied when withdrawals occur, by which time you would most likely have paid off the IRS under any scenario. In a Chapter 13, you usually come up with a plan to settle your debts (albeit at potentially smaller amounts) over a period of usually 3 to 5 years. Unlike a Chapter 7 liquidation, it is not as common to discharge your tax debt. I am not sure if it is possible, absent really exceptional circumstances, but bankruptcy is not my primary area. Even in Chapter 7 proceedings, where the IRS will initiate an adversary proceeding, they usually hotly contest a discharge of tax debt.

You stated that the taxes were included in your Chapter 13, so the lien would be lifted, ostensibly, at the conclusion of the plan. You should go back to your Bankruptcy attorney who should be able to explain the timing and how that will effect your 401(k) plan.

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2 comments

Michael Avanesian

Michael Avanesian

Posted

One of the better aspects of Chapter 13, as opposed to a 7, is that interest on the taxes stop. Also, to the extent the value of secured taxes, which would be otherwise dischargeable, exceed the value of the collateral securing it, are discharged as well. It's so important to figure out if this lien is for dischargeable taxes or not, and when it attached to the 401k.

Manuel Alzamora Juarez

Manuel Alzamora Juarez

Posted

This is a highly specialized area and a taxpayer is well advised to retain counsel familiar with tax ramifications. I admit I am not an expert in taxation even though I have studied more than four atxatin courses and have 6i hours of accounting, finance and economics combined. SO TAXPAYER SHOULD BE FOREWARNED. WHERE THERE IS MONEY THE IRS WILL HOLD ON TO IT LIKE A BULLDOG!!!!

Posted

There is something called a secret lien and once in play, they have a lien that survives bankruptcy and can penetrate your retirement accounts.

The big question is going to be how much of the taxes are paid through the Plan. If you pay all of the taxes, then you will be able to remove the lien. More than likely, that would be after you finish paying them.

Good luck and get your attorney to contact the IRS and see what they are willing to do.

Best of luck.

Jim Webster
www.jpwlegal.com

1845 S. Dobson Rd. Ste 201
Mesa, AZ 85202

(480) 464-4667
Jim@jpwlegal.com

We are a debt relief agency. We help people file for relief under the Bankruptcy Code.

If you live in Arizona, please contact me for actual advice; this is just speculation. It certainly is not legal advice. I don't have enough information to give actual legal advice. I can only take the limited information presented and provide a idea of what you might do and how it may turn out.

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