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Tax Liens in a Personal Bankruptcy

On Behalf of | Sep 5, 2014 | Bankruptcy Basics

If you have tax liens recorded against you and you are considering filing a personal bankruptcy, it is important to understand how they will be handled in your case. Your personal liability to pay the tax lien is discharged in your bankruptcy filing; however, the lien is still valid.

What does this mean? In short, the creditor holding the lien cannot use collection efforts (lawsuits, garnishments, etc.) against you to satisfy the debt. Additionally, discharged tax lien creditors cannot pursue assets that you acquire after the bankruptcy. So, if your bankruptcy discharge applied to older taxes, the taxing authority cannot garnish your future paychecks.

However, a lien against your property may survive the bankruptcy. A properly perfected tax lien can attach to all of your personal and real property in the county where it is recorded. The important determination is how valuable the property is that the lien attaches to. The IRS will not expend the time and money to pursue a tax sale if the property has only minimal value, which is often the case.

It is also important to note that tax liens expire. The statute of limitations for most federal tax liens is 10 years from the date the tax was assessed (not the date the lien was recorded). As a result, many people rely on the passage of time to resolve their tax lien after a bankruptcy filing. It may also be possible to negotiate the release of the lien for a small settlement payment.

If you are interested in learning how filing a bankruptcy case can benefit you, contact Levitt & Slafkes, P.C., at 973-323-2953. You can also reach us by filling out our online form. We represent debtors in Chapter 7, Chapter 13 and Chapter 11 filings. Let us help you get the fresh financial start you need today.