POST BANKRUPTCY IRS LIEN REMOVAL

OVERVIEW AND FAQ

OVERVIEW - POST BANKRUPTCY IRS LIEN REMOVAL

Using bankruptcy law to resolve IRS liens post bankruptcy discharge…when it makes the most sense.

BACKGROUND

A bankruptcy discharge is a big deal. It eliminates your personal liability for overwhelming credit card debt, medical bills and other unsecured debt. It can also elimate your personal liability for IRS income tax debt that meets certain criteria.

However, even if the underlying tax debt is discharged… any lien (as evidenced by a lien notice recorded with the County) survives the discharge and remains attached to all property you owned on the date you filed the bankruptcy.

The problem with this is that even though you’ve gone to the trouble of obtaining the discharge, the IRS can still attempt to collect against those assets, and the lien can complicate home sales, obtaining credit, jobs, and refinancing efforts.

When you file a bankruptcy case with the intent to obtain a discharge as to your IRS debt, if there is a recorded lien notice, you must be prepared to either wait out the 10 year date (collection statute expiration date) that ends the IRS’s ability to collect and ends the lien, or be prepared to work with the IRS to obtain a lien release.

OBTAINING A LIEN RELEASE POST BANKRUPTCY DISCHARGE

If the 10 year date is a long way off… such that you don’t want to wait for it to arrive, you’ll have to work with the IRS Field Insolvency Unit in an attempt to obtain a release of the lien notice. I help clients with this in situations where:

  • The tax debt was discharged and you only have few assets or the assets are exempt (as the IRS is often uninterested in exempt assets with little value)

  • Where some of the tax was discharged

  • When you own real estate

  • When the undlying debt wsn’t discharged but the lien needs to be released

Next Step

Whether you were my client or not in the underlying bankruptcy case, if you have an issue with an IRS lien notice post bankruptcy, you can set a time to speak with me about whether it will make sense to approach the IRS now or wait to see if they show up before the 10 year clock runs out.

DISCUSS WITH ATTORNEY

FAQ - POST BANKRUPTCY IRS LIEN REMOVAL

  • In Chapter 7, the IRS”statutory” lien is automatically stripped from all property you owned on the filing date if the underlying tax was discharged and no “notice of federal tax lien'‘ (nftl) was properly filed before the bankruptcy was filed. IF an nftl was recorded properly prior to the bankruptcy filing, the irs will usually agree to release the nftl if the property you owned on the date of the bankruptcy filing was minimal. It may refuse to release and in that case, you’d need to wait for the 10 year collection statute expiration date to expire or work something out with the IRS in exchange for the lien release.

  • IF the IRS lien shows on your credit report (it probably doesn’t) - you can obtain a lien release and attempt to use that to remove from report. A withdrawal of the lien notice would be more useful in that effort, but the IRS won’t typically issue a lien withdrawal when the underlying debt was discharged in bankruptcy. (just a release)

  • If there was no “notice of federal tax lien” (nftl) filed with the County recorder, the title company should assume there is no tax lien to be paid post bankruptcy. If there’s no nftl and the underlying debt is discharged, no lien exists nftl or otherwise. If there is an nftl, even if the underlying obligation is discharged, you will need to work with the IRS to get the nftl released post bankruptcy discharge which may result in some delay.

  • If the irs debt obligation was discharged, the IRS can’t issue a new “notice of federal tax lien” related to that discharged debt. It’s lien notice will remain “attached” to assets you owned at the time of the bankruptcy filing and you may need to work something out with the IRS to obtain a lien release (which they often will) or wait for the original 10 year collection statute expiration date to run.

  • IRS debt in a chapter 13 bankruptcy is divided into categories. Priority debt that has be be paid from plan proceeds during the plan, secured debt, which is the amount of the IRS debt secured by the value of the filer’s assets, which get’s paid during the plan with interest, general unsecured debt which is either the IRS debt that is discharged at the plan or the amount that isn’t dischargeable but isn’t subject to lien or priority. In every case, the IRS lien value is paid to the IRS during the plan and no lien exists post bankruptcy discharge. The IRS should release any notice of federal tax lien recorded with the county upon request.