12 Nov Federal Tax Liens and Personal Property in Bankruptcy
Federal tax liens attach to personal property acquired by the debtor before a bankruptcy case. Federal tax liens can not be avoided in bankruptcy. 11 U.S.C. § 522(c)(2)(B). However, there are options for dealing with federal tax liens and personal property in Chapter 7 bankruptcies. This a partial list that applies when a tax debt is dischargeable, but subject to a lien.
1. One can redeem exempt personal property subject to the lien under Section 722 of the Bankruptcy Code. This requires a judicial determination of the value of the encumbered personal property, and it has the disadvantage of requiring an upfront payment, but it does have the advantage of finality (at least with respect to the personal property).
2. One can wait until discharge enters and then negotiate with the IRS to pay the equity value of the personal property. The IRS may negotiate a payment plan under these circumstances, but there will be no judge to impartially set the value of the property.
3. One can do nothing and hope that the IRS does not seek to exercise its in rem rights against the personal property after the bankruptcy. If the value of the property is low, this is often a good bet.
4. Although this would rarely be needed, a last option would be to file a Chapter 13 bankruptcy after the Chapter 7 in order to pay out the value of the government lien over the life of the plan.
Nicholas Ortiz, Boston Bankruptcy Attorney
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