While you can eliminate some of your tax debts when you file for a Chapter 7 bankruptcy, in general, if your property already has a recorded tax lien, you might not be able to eliminate it. Fortunately, there are some exceptions. But first, what is a tax lien?
What exactly is a tax lien?
A tax lien is essentially a kind of security interest creditors can place on certain personal or real property. This will enable creditors to have a legal right to the property in the event that a debtor fails to make good on his or her payments. Generally speaking, liens are typically implemented in cases that involve real property loans like a house or condominium unit. Consult your Chapter 7 bankruptcy attorney in Salt Lake City if you have difficulty understanding all this.
What will happen to a tax lien if I file for Chapter 7 bankruptcy?
As mentioned above, you can get certain tax debts discharged when you file for a Chapter 7 bankruptcy. Unfortunately, in the event that the Internal Revenue Service (IRS) has already imposed a tax lien against a property of yours due to debt, it will stay even if you manage to discharge your underlying debt. This basically means that IRS won’t be able to go after your bank account or wages, but then you’ll need to pay off the tax lien if you decide to sell your property. You can, however, appeal to the court to contest a lien based on certain grounds, which include the following:
- IRS only recorded the tax lien even after an automatic stay was placed on your property.
- IRS didn’t actually record the tax lien.
- The tax lien is more than ten years old.
- IRS recorded the tax lien against a property that isn’t really yours, like against your son’s home, for instance, or in a different county.
How else can I discharge a tax lien?
Aside from challenging a tax lien, you can also consider the following ways to try and have a tax lien discharged:
- Surrender your property – When you surrender your property, your creditor will be given 30 days to claim it. If your creditor fails to claim the property, it will be considered abandoned and free of debt, including the tax lien. Although you can avoid a lien this way, you must prepare yourself for the possibility that you’ll lose your property.
- Pay off your property – When paying off your property, you can choose to do it in lump sum—if you have the cash—or speak to IRS about working out an installment repayment plan.
It’s very important to note that these lien removal or avoidance options come with the risk that you might lose your property. Still, know that removing a lien usually has more favorable credit consequences than just allowing it to be recorded against your property. With this in mind, if you’ve made up your mind about filing for Chapter 7 bankruptcy and you believe that you can qualify for certain exemptions that will enable you to get rid of a lien, talk to an experienced bankruptcy lawyer to explore all options available to you.
