Tax liens after bankruptcy: alternative strategies

25 Jun Tax liens after bankruptcy: alternative strategies

Bankruptcy discharges most debts owed, but if a lien was taken before filing then you may still have to deal with it – especially a tax lien.

Liens, including tax liens, survive a bankruptcy discharge. If the tax that generated the lien is discharged, the lien does not attach to assets acquired after filing bankruptcy.

What to do with the lien on the assets owned at filing?

  • Do nothing, is one possibility.

If the assets have small value and a short useful life, like household goods or cars, ignore the lien. While the exemptions available in bankruptcy are not applicable to the IRS, there is a separate, smaller list of property exempt from levy by the IRS. It may be that the IRS is prohibited from taking the assets in question.

In my experience, the IRS is not keen to levy on most personal property that is not exempt under the Internal Revenue Code. It costs too much to do so. So, the continued existence of the lien poses no real threat to continued possession and use of the goods.

When those assets owned at filing are used up and sold or discarded, the IRS’s lien goes with them.

Tax liens expire of old age 10 years after the assessment of the tax they support. Absent purposeful renewal of the lien by the IRS (something I have not experienced in 28 years of practice), the lien becomes unenforceable.

  • Pay off the lien to get a release is the alternative.

Remember that the lien’s value is only the present value of the things to which it is attached.

Offer the IRS that value, or less if you feel like bargaining, and obtain a release of the lien.

Getting the lien released provides clarity in future credit transactions. The release is proof that there is no ongoing exposure for the dischargedtaxes. Since thedischarge order doesn’t saywhat is included, a release will make life easier.

See part one of this article Tax liens after bankruptcy.

Related Posts Plugin for WordPress, Blogger...
The following two tabs change content below.

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.
No Comments

Sorry, the comment form is closed at this time.