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I filed chapter 11 got a discharge and the IRS didn't release its lien and still levied me. What can I do?

Los Angeles, CA |

Prior to filing chapter 11 I had a lien on certain real property from tax debt. Then, I filed Chapter 11 and included the tax debt in the plan. The plan was approved and I received a discharge and the case was closed after three years. Three years later I tried to refinance. When I refinanced this time, the IRS took all my equity in my property to pay off the lien/levy. I now realize that the lien was the same lien that was discharged in my Plan but they just never released the lien. Can I get them for violating the permanent injunction and what do I do? When I called they said that the discharge discharged me personally but that the lien still attached to the asset.

Attorney Answers 3


Nothing. The Chapter 11 bankruptcy discharged the debt, but would not have removed the tax lien. if the IRS recorded a tax lien on your property before you filed for bankruptcy, the lien will remain on the property. Therefore, when you refinanced the loan, the IRS was entitled to be paid.

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While property dealt with by the plan may be stripped of the tax lien pursuant to 11 USC § 1141(c), individual debtors often have prepetition property which is excluded from their bankruptcy estates (such as ERISA qualified pension interests, as in Patterson v. Shumate, 504 U.S. 753 (1992)); exempted from their bankruptcy estates (see 11 USC § 522, Bankruptcy Rule 4003, and Taylor v. Freeland, 503 U.S. 638 (1992)); or abandoned by their bankruptcy estates prior to plan confirmation (11 USC §§ 554(a)-(b)).

An individual debtor’s non-estate property of this type is not generally dealt with by a Chapter 11 plan, so this property is not ordinarily stripped of prepetition tax liens by the plan. See 11 USC § 1141(c); In re Isom, 901 F.2d 744 (9th Cir. 1990). So, while exemptions may have protected the equity in your home from general creditors, they did not affect the IRS.

One thing worth noting is that IRS tax liens are subject to lien stripping on debtor's residence in Chapter 11 just like any other lien. The Bankruptcy Court in Johnson v. IRS, Bktcy Ct PA, 101 AFTR 2d 2008-1798, held the IRS lien against Chapter 11 debtor's residence was null and void pursuant to 11 USC 506 because other priority liens pre-dating the IRS lien collectively exceeded residence's fair market value (FMV), so there was no equity in residence to which IRS lien could attach. You don't really say if this is your residence, but it seems implied.

Not really enough information in the post to know how you dealt with the issue in the Plan. This can be complex stuff. I suggest you simply contact your prior attorney and ask how this is possible. Doubtless this is from a misunderstanding of how the Plan would address the IRS debts in full. I am sure he/she can explain what happened. If on the off-chance the IRS did something they should not have, then you really need to have him/her layout your options.

Had this been a Chapter 7, there would be even less to mull over. The IRS lien cannot be stripped in the 7 and would survive the discharge as stated by my colleague.

Best of Luck.

The posting attorney is admitted to the U.S. Tax Court and authorized to represent clients in all 50 states before the IRS. Outside of IRS matters, the posting attorney is licensed to practice law generally in the State of Texas and no other state. The information provided in this post is for general educational purposes only and should not be relied upon as legal advice by any party. No attorney-client relationship is formed with any party by the mere posting (or reading) of this information on the AVVO website. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency

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Benjamin A. Stolz

Benjamin A. Stolz


A quick note (just like any other lien was too broad). I intended to indicate undersecured Junior liens, not first mortgage liens on residential real property. Just to be clear.


Chapter 11 proceedings are very complex. I am sure you were represented by an attorney and probably one that is very proficient in the bankruptcy laws. Did you go back to your attorney and ask him to explain?
Normally, if the IRS has placed a lien on a property, it would be subject to it being "stripped". The fact that you may have obtained a discharge personally from the taxes, does not automatically wipe out or strip the lien from the property. Therefor, when you sell or refinance, if you have equity, the IRS will help themselves to satisfy the lien. If your property was "under water" at the time you filed the chapter 11, the lien could have been stripped. If you had equity, it could not.
Without more facts, it would be difficult to tell you exactly what happened and why, but I believe my response and that of the other attorneys could give you some ideas.

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