Why does the IRS file liens? And what you can do about one.

21 Sep Why does the IRS file liens? And what you can do about one.

The obvious reason the IRS files a lien is because someone owes it money.  If you have a lien filed against your property the IRS is attempting to collect a debt. It could be an aggressive or passive collection attempt but the lien signals the existence of a debt. Whenever you face debt collection consider your options, including the possibility of bankruptcy.

For a greater understanding, first let’s briefly examine what is a lien.  A lien creates a right to keep possession of property belonging to another person until a debt owed by that person is paid.  Most liens do not involve keeping possession of property, but involve a notice to everyone that ownership or use of the property is restricted by the debt.  This is called an encumbrance and it restricts the ability to enjoy the use of the property and lessens the property value.

When the IRS files a lien that lien serves as notice that the IRS has placed an encumbrance on someone’s property. A lien that is properly perfected, in other words is filed properly, allows the lien holder to seize and sell property to pay a debt.

What does a lien cover?  An IRS lien encumbers all of your assets, including houses, cars, real estate, bank account, that you own at the time the lien is filed and that you acquire while the lien is still in place.

How long does an IRS lien last? The lien itself lasts for 10 years or until the debt is satisfied.  If the IRS sues in court it can obtain a judgment on the debt that could last longer than the 10 year lien limit.

Is anything protected from a lien?  Yes, federal law limits the type of property that can be seized, some things are protected up to a certain dollar amount and other things that are reasonable or necessary are exempt from levy.  The following is a partial list of stuff that is protected from levy:

  • Clothes and school books;
  • $6,250 of household food, furniture, personal effects;
  • Books and tools for business or trade up to $3,125;
  • Unemployment benefits;
  • Undelivered mail;
  • Certain retirement or annuity pay under the Railroad Retirement Act, Railroad Unemployment Insurance Act;
  • Special pension payments by military Medal of Honor holders;
  • Workers compensation;
  • Child support;
  • A minimum amount of wages earned from a job;
  • Military service connected disability payments;
  • Certain public assistance.

The above information is not exhaustive, and as is the case with many laws, certain exceptions apply.

What can you do about an IRS lien?  Options include determining whether you owe the debt; evaluating whether your property is exempt from levy or whether some or all of your assets are exposed to collection; negotiating payment of the debt and satisfaction of the lien with the IRS; or consider filing bankruptcy.

How does bankruptcy treat an IRS lien?  A properly perfected lien gives the IRS a secured claim against property. Depending on the circumstances of a particular case, including the amount of the debt, the value of the property, and the nature of the IRS debt, either the lien or the debt, or both, could survive a bankruptcy case and remain in effect.

For more information look to 26 U.S. Code 6334 or contact a bankruptcy lawyer.

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Andy Miofsky, Esq.

Andy Miofsky holds the highest AV PREEMINENT rating from Martindale Hubbell Law Directory and a perfect 10.0 from AVVO. Andy is an Illinois consumer rights lawyer with offices in Granite City Illinois. Andy represents people with bankruptcy and student loan debt problems throughout the Southern District of Illinois since 1979.
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