chapter 7 & income tax

[DoneinWA]

Here is our situation:

Legitimate returns were filed.

Tax returns were filed over four years ago.

Tax liability is for tax years 1998, 1999, 2001, 2001 and 2003 (at least three years).

IRS assessed liability in 2006.

Tax lien was filed in 2006.

No action by IRS since that time.

Our attorney said that since a lien was filed there is "a chance" that the tax debt may not be discharged. I understand that if we owned property that the lien would survive, but since there is no property, I thought that the debt would be discharged, and that the lien (no value) might be released, or that we would have to file a Motion to Value the lien in order to have it released.

I am really confused by this latest information, we filed today.

Here we go.

[justbroke]

The lien won't be released unless you can prove an impairment of an exemption. Federal tax liens are special as are most liens. They don't just disappear because the underlying debt was discharged. This is why you never really want a tax lien placed upon your property, because federal tax liens apply to ALL your property.

Some think that "property" means real property. However, property means real and personal property. Unless the lien impairs an exemption, the property is still encumbered by the lien. There are some exemptions under federal law for clothing and furniture, but not all furniture, furnishings, electronics, etc are protected (See 11 USC 522).

If all you have are those things under 11 USC 522 that you can exempt, then you could file a Motion to Avoid Lien since it would impair your exemptions. However, if your State disallows the federal exemptions, you'll have to use your State exemptions.

(There is some, and I can't remember, caselaw which shows that the tax lien would only apply to personal (and real) property that you had acquired prior to filing. That the lien, as filed, would not attach to any new property after you filed a bankruptcy. I just vaguely remember this, so don't quote me.)

Your attorney is correct, they are technically non-dischargeable.

[DoneinWA]

Okay, that makes more sense, I think. There is no property (real or personal) that is not exempt, and our state is eligible for federal exemption (WA). I'm not trying to be stupid, but will the debt be discharged? I don't want to go through all of this and still owe $100K+ at the end of it. I understand that the lien might survive, but does the debt too?

Thank you for your patience.

[DoneinWA]

Also, I am most worried about future earnings being garnished/levied.


Thank you.

[justbroke]

I understand that the lien might survive, but does the debt too?

The debt does go away. However, the IRS can enforce it's lien against ALL (non-exempt) PROPERTY that you had prior to filing your bankruptcy petition.

Okay, that makes more sense, I think. There is no property (real or personal) that is not exempt, and our state is eligible for federal exemption (WA). I'm not trying to be stupid, but will the debt be discharged?

You may need to look to your attorney. The liability of the debt itself IS discharged and you personally don't owe it. However, as stated, they can enforce the lien, just as a bank can enforce their lien on a surrendered home!

Anyhow, take a look at this site http://austinbankruptcyattorney.com/?page_id=34, although it's Texas, it goes over the federal tax lien pretty well.

Also, I am most worried about future earnings being garnished/levied.

As I stated earlier, your personal responsibility for repaying the debt (which the lien secures) is discharged. They can't go after any future property including money earned (which is a type of personal property).

If you get into new tax trouble, well, that's a different story.

[DoneinWA]

Just Broke:

Thank you. That makes me feel better. We have surrendered all property, have very little in the way of exemptions (less than $5000 altogether) and most certainly aren't going to have any tax issues going forward.

We just need a fresh start. Thank you for the link, I appreciate it.

[DoneinWA]

One more question! I was just looking at the Notice of Federal Tax Lien that was filed against my husband. The Social Security number is incorrect. Can that help us at all?

Thank you.

[sworks2]

More than likely if you don't own a home, which is different than a home with no equity, you will be able to get the IRS lien released.

You may get really lucky and it will be automatically released by the system and you won't have to file to get it released.

Since the lien only attaches to pre-petition income and property and if you don't have much, in reality what can they take.
If you have retirement accounts that will be another story, they will levy those after your discharge.

Offer your bankruptcy specialist with the IRS $1000 to release the lien if you don't get an automatic release 30 days after your bk closes. You'll get the release.

[justbroke]

Good advice sworks...