Well done bankruptcy schedules defeat IRS lien

by Cathy Moran, Esq.

October 2, 2007

Faced with a seemingly endless number of questions about their financial life, bankruptcy debtors are tempted to give the bankruptcy papers just a lick and a promise. Yesterday, my conscientious debtor beat an IRS lien because his statement of financial affairs filed in his bankruptcy case showed he didn’t live in the county when the lien was recorded.

The IRS perfects a lien in a debtor’s assets in California by recording notice of the lien with the county recorder. Only perfected liens are entitled to be paid as secured claims through the Chapter 13 plan. In the absence of a lien, my client’s entire tax debt was dischargeable at pennies on the dollar. If the lien was valid, he would pay the value of his assets up to the amount of the tax, plus interest, to the IRS.

We were able to show the IRS representative the question on the statement of financial affairs, filed under penalty of perjury, that he left the county in the spring and the lien wasn’t recorded until the end of the year.

The outcome could have been far different if the debtor was careless about filling out the schedules. It would have been awkward to say the least had the schedules said one thing and the facts that defeated the lien another. Bravo for the client who took each question on the questionnaire seriously. He saved himself a bundle.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.

Last modified: October 2, 2007