When a Tax Lien Can Be a Good Thing…

17 Jun When a Tax Lien Can Be a Good Thing…

Tax liens usually aren’t good things. But in at least one situation, they can help someone save their home in bankruptcy.

In those states, such as Maryland, that do not have unlimited homestead exemptions, bankruptcy attorneys often have to deal with clients who own real estate that has non-exempt equity. This equity can be a problem, requiring either large payments through a Chapter 11 or Chapter 13 under the “Chapter 7 Liquidation Analysis Test,” or loss of the property in a Chapter 7.

In one recent case, this problem was “solved” through a large state tax lien. The client owned a house that had $60,000 in non-exempt equity. This typically would have resulted in the property being sold in a Chapter 7–something the client did not want to occur–or would have required a monthly payment in excess of $1,000 in a Chapter 13–something the client could not afford. She did have some rather large old state taxes in connection with a long-closed business, and the state had filed a $200,000 tax lien several years earlier. As a result, all of the equity in the house was eaten up by the secured claim of the state on the tax lien, meaning that the client could keep the house in a Chapter 7 or make affordable payments in a Chapter 11 or Chapter 13, taxes that were not part of the lien could be discharged, and the rest of the tax lien could be “stripped off” the property, leaving only $60,000 in claims to deal with.

The client ended up filing a Chapter 7 and worked out an affordable payment plan with the state that started after she got her discharge.

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Brett Weiss, a senior partner at The Weiss Law Group, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his colleague, Daniel Press, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the previous Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute and the Bankruptcy Bar Association of Maryland. He has received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, the United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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