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I want to file Chapter 7. I am certain the IRS debt will be discharged but how can I get the lien lifted?

Delray Beach, FL |

I have an IRS lien that is attached to a house underwater that the bank is taking in a couple of months after foreclosure judgment. I do not have any assets of value. So the IRS will not receive any compensation in a Chapter 7 Bankruptcy. I am 100% sure the old taxes will be discharged in bankruptcy. Will the lien automatically be lifted upon discharge? If not, what do I have to do to get the lien lifted and can the lien be applied to newly acquired future property after bankruptcy even thought what I owe the IRS was discharged in the bankruptcy?

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Attorney answers 7

Posted

The debt will be dischargeable if it fits within the twin tests of 11 USC 523(a)(1) and 507(a)(8). You can only determine dischargeability of taxes by examining the transcript of account and comparing the dates and codes against the Bankruptcy Code. Be careful. You are stuck with the lien. Discharging the taxes does not give grounds for eliminating the lien, which will expire at the end of 10 years from filing, but can be renewed.

Posting questions anonymously and receiving general answers do not substitute for consulting with an attorney licensed to practice in the jurisdiction in which you live. Answers posted here by Kevin C Gleason are only intended for general education of the public on legal matters. Please consult a qualified professional before deciding what to do about your situation.

Robert Jan Suhajda

Robert Jan Suhajda

Posted

Once the lien has come into existence, it attaches immediately to any property acquired by the taxpayer during the existence of the lien. In other words, unlike a typical mortgage, the federal tax lien attaches to a taxpayer’s after-acquired property.

Posted

I would not be so certain that the IRS debt is dischargeable. The rules for discharging tax debts are fairly complex. You should revise this with an experienced bankruptcy attorney before so concluding. Plus the fact that the tax lien has attached to property in which there is no equity does not mean you are out of the woods, necessarily.

I am not your attorney unless you and I have signed a retainer agreement. What I am saying is not legal advice. Do not act on this information without engaging my services, this is for consideration only.

Robert Jan Suhajda

Robert Jan Suhajda

Posted

Once the lien has come into existence, it attaches immediately to any property acquired by the taxpayer during the existence of the lien. In other words, unlike a typical mortgage, the federal tax lien attaches to a taxpayer’s after-acquired property.

Asker

Posted

What sort of things typically make it complex? It seems very straight forward to me. My taxes are from two 1040 filings. They were filed on time and the taxes were assessed when filed. They were 2008 and 2009 returns. The three years ended April 2013. Also, none of the exceptions like (CDP) hearings, innocent spouse relief, and tax assistance orders apply to me. Is there typical oversights that you are accustom to seeing that I should be aware of?

Posted

An adversary complaint against IRS can be filed during the bankruptcy case to confirm the debt is discharged. The lien continues to attach against existing property you own at the time of filing the case, but the judgment in the adversary complaint can specify that the IRS lien does not attach against future acquired assets.

The questions and answers posted on AVVO are for general information and should not be treated as legal advice or establishing an attorney-client relationship.

Robert Jan Suhajda

Robert Jan Suhajda

Posted

Once the lien has come into existence, it attaches immediately to any property acquired by the taxpayer during the existence of the lien. In other words, unlike a typical mortgage, the federal tax lien attaches to a taxpayer’s after-acquired property.

Asker

Posted

Who do you make adversary complaint to? Is this a motion in court or is this a special complaint procedure through an IRS department?

Posted

I have been successful at getting the IRS to release tax liens on discharged tax debt in cases involving a Chapter 7 bankruptcy with minimal assets (less than $25k in equity). I normally request this in writing after the Order Granting Discharge is issued. The IRS does this in many situations as a matter of public policy. It is within their discretion, however, and they do not have to. Also, if you owe taxes for non-dischargeable years, they will not release the liens for the discharged years until the non-discharged years are paid. I agree with the other attorneys that this is complicated and you should get a bankruptcy attorney to help you.

The information provided herein does not create an attorney client relationship and is not a substitute for having a consultation with a bankruptcy attorney. It is important to have a consultation with a bankruptcy attorney as the information provided in this forum is limited and cannot possibly cover all potential issues in a given situation.

Robert Jan Suhajda

Robert Jan Suhajda

Posted

Once the lien has come into existence, it attaches immediately to any property acquired by the taxpayer during the existence of the lien. In other words, unlike a typical mortgage, the federal tax lien attaches to a taxpayer’s after-acquired property.

Shaye Larkin

Shaye Larkin

Posted

Not if the underlying tax debt is discharged in bankruptcy it doesn't. It ends there. The lien doesn't go away until it expires unless the IRS releases it, but it doesn't attach to after acquired property. Read Morgan King's Discharging Taxes In Bankruptcy.

Asker

Posted

The only taxes I owe, amount to $55,000 of 1040 taxes. I owe the IRS taxes for 2008 and 2009 that I want to discharge. They were filed on time, the money owed was assessed at time of filing, and the due date of the most recent year was three years old as of April 2013. So from what I read, this means they can be discharged. And I did request their account record and it does match this the dates and times I just mentioned. I will be a no asset chapter 7 filing. So after the discharge, I should write the IRS and ask them to remove the lien, correct? There would be no reason for them not to release the lien, correct? Because what good is it to them if it can't be attached to future property?

Shaye Larkin

Shaye Larkin

Posted

My advice to you is have an attorney review your transcripts prior to filing bankruptcy to make sure they are dischargeable. Assuming they are, after you receive your discharge, you fax the discharge order and a letter requesting a release of the liens to the IRS Insolvency Office handling your taxes. As I mentioned in my answer, releasing liens is DISCRETIONARY on the part of the IRS. They do not have to do it and in deciding whether they want to release the liens they will review the assets you have listed in your bankruptcy.

Asker

Posted

Thank You. You are the most helpful. But if they don't release the lien, can this lien harm me at any point in the future? Isn't it a useless lien with no power of enforcement after the discharge?

Asker

Posted

I meant the lien will be useless to them as long as I do not ever owe them anymore taxes, right?

Shaye Larkin

Shaye Larkin

Posted

No. The lien survives to the extent of the value of the property to which it attaches. And IRS liens attached to everything - even your shoes and socks. So if the value of your personal property is $2500, then that's the value of the IRS lien and even though the debt is discharged they could still exercise their lien rights meaning they could force a sale of your assets to pay the lien. But the bottom line is the IRS isn't interested in your shoes and socks and that's why as a matter of public policy in many cases they will agree to release the lien if the assets to which the lien attaches are minimal.

Asker

Posted

You said earlier that "it doesn't attach to after acquired property". Now you are saying it attaches to everything even shoes and socks. So which is it? Because if it doesn't attach to acquired property after the discharge, then it is a unless lien that not only has no benefit to the IRS but cannot harm me. I asked you if that was the case, and you said no, it can harm me. But if the lien cannot attach to any acquired property after the discharge, what can it accomplish? Did you mistype when you said it couldn't attach to property after the discharge?

Shaye Larkin

Shaye Larkin

Posted

It attaches to whatever you own at the time you file your bankruptcy case.

Shaye Larkin

Shaye Larkin

Posted

If the underlying taxes are discharged, the lien will not attach to after acquired property. It will, however, attach to whatever property you own AS OF THE DAY THE BANKRUPTCY IS FILED, including retirement accounts, houses, clothes and furniture, cars, and existing rights to receive property in the future, such as an interest in a personal injury claim that arose before the bankruptcy was filed.

Asker

Posted

Thank you. But Chapter 7 is liquidation of all property that is needed to pay creditors and property worthwhile to liquidate. Anything I have that they can take from holding that IRS lien they will get during the bankruptcy proceedings. They hold the superior lien. I was referring to after the discharge. So my question I posted earlier, "Isn't it a useless lien with no power of enforcement after the discharge?" Your answer is "yes" not "no"?

Shaye Larkin

Shaye Larkin

Posted

Whatever assets you acquire after the day your bankruptcy is filed are "after acquired assets" to which the lien does not apply.

Asker

Posted

You gave me the most beneficial information of any attorney on here. Actually, you are the only one that was able to answer my questions. I appreciate it.

Shaye Larkin

Shaye Larkin

Posted

:) Thank you :)

Posted

Once the lien has come into existence, it attaches immediately to any property acquired by the taxpayer during the existence of the lien. In other words, unlike a typical mortgage, the federal tax lien attaches to a taxpayer’s after-acquired property. If the debt is extinguished, call the IRS lien department and ask for a discharge of the lien. You cannot assume the IRS will do anything automatically.

Disclaimer of California Attorney. Laws differ from state to state. Although the above response is believed to be accurate, it should not be relied upon as any type of legal advice because the information provided is incomplete. It is intended to educate the reader and a more definite answer should be based on a consultation with a lawyer. No attorney client relation is formed with me without a written contract. Good Luck starts with a strategy and a plan. Tax Relief Lawyer. Former financial auditor and controller. Admitted to US Tax Court, Income Tax, IRS representation, Fiduciary income tax returns, Estate and Gift tax returns, Homeowner Association Strategist.

Asker

Posted

If what you are saying is correct that the lien will still be in force attaching to future property, what is the point in discharging the tax debt in Chapter 7 bankruptcy? And if the IRS can still collect all taxes due with this lien after the discharge, it would make no sense for them to release the lien until they are paid.

Robert Jan Suhajda

Robert Jan Suhajda

Posted

If the all taxes are discharged in bk the lien may be lifted. If not all taxes are discharged then set up an installment plan and request the lien be lifted. You have to give the IRS some assurance the remaining taxes are paid. It is discretionary

Asker

Posted

What is discretionary? The lien? No taxes will be paid and no taxes will be owed.

Posted

It is not easy to discharge taxes in a bankruptcy. There are several, complex issues that have to be examined. Be sure to see an attorney who has experience in this area.

This is not legal advice and I am not your attorney until you retain my office. Always consult with an attorney in your area before acting on anything you read on the internet.

Asker

Posted

I read the laws in regards to discharging the sort of taxes I was referring to and it didn't look complex to me. Actually, it was simple and straight forward. Why is it complex?

Posted

Basically speaking if there is no equity in the home or any other assets, the IRS will release the lien because the lien cannot attach to post-petition equity or post-petition acquired property. I made a video with more info about this situation which you can access at the link below.

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