Conflicting info between atty consults...file Ch 7 or Ch 13? dealing with tax liens

[butterfly57]

I have a federal tax lien and a state tax lien both filed in 2008 ($100K w/ penalties and interest now). I have very minimal credit card debt (under $4,000). I am on the deed to a home with my ex-husband but he's the only person on the mortgage and the home is in foreclosure. There is a home equity loan I am on with the ex. I am remarried but haven't filed tax returns with my husband or share a bank account with him. Actually the bank account I did have the state froze 2 years ago. My husband is disabled, limited income and I work part time. Hence the reason it is taking me so long to file BK.

But, I met with two different attorneys a year or two ago and both advised me to file chapter 7. The first expensive attorney gave me the impression all the tax debt would disappear completely. The second attorney told me that I'd still end up owing something because I own a car.

And then I dug deeper on this site and discovered the thread "Chapter 7 and Federal Taxes". I read about how tax liens survive, etc. Also, learned about filing a Motion to Determine Value of Lien with the BK court.

So I met with a female attorney today and she actually sat with me for over an hour instead of the paralegals with the first two male attorneys (nothing against male or female attorneys, just using that to differentiate between them in discussion). Well, once she was leaning towards a "simple" chapter 7 based on the fact I don't really own a heck of alot, but then she realized I had tax liens against me and she changed her tune to a Chapter 13. She said I was more "protected" that way. But, her fee doubled with a Chapter 13 and the monthly payments she was guessing at scared the heck out of me....they ranged from $88 to $300. She said there was no way of knowing until the trustee decided. I also mentioned filing a "Motion to Determine Value of Lien" and she blew me off. I even had it written down for her to read and she dismissed it.

Help please I'm so confused now....I thought for sure I'd be filing chapter 7, now I have no clue whose advice to take.

[justbroke]

Federal Tax Liens (FLTs) are special and just like other liens they survive bankruptcy. IN many cases, where the debtor really has nothing for the tax to attach or it is not worth the IRS' time and effort, the IRS will voluntarily remove an FLT on a mere request of a debtor, after the debtor is discharged. It can be that simple, or it could be more complex. The key is that you don't know how the IRS will behave.

Since you only recently spoken with one attorney, and spoke with 2 attorneys more than a year ago, you need to find 2-3 more attorneys to speak with today. Make sure, before the consult, that you informed them that there are FTLs so that they come prepared.

Search the forum on Federal Tax Liens. Recently, one of our attorney-members, desprifreya, wrote about how his practice deals with FTLs. Specifically, they file the Chapter 7 normally and schedule the tax debt appropriately. They then send a 45 day letter to the Special Procedures Function (SPF) of the IRS and basically ask them to remove the FTL. It is usually as simple as... either the IRS is going to remove it on a simple request, or the IRS is going to refuse.

[despritfreya]

JB,

Thank you for the "plug". I do believe that, if a debtor has no assets of any real value and otherwise does not need a 13, the 7 is the way to go. Once discharged, communicating with the taxing agency to work out the release of the lien or an agreed sum to pay for the "secured" portion of the claim will work. This, of course, assumes that the taxes otherwise meet the test for dischargeability.

I do want to mention that my "45 day letter" may no longer assist in this endeavor because the IRS is restructuring how and who handles bk matters. It is my understanding that Special Procedures Function is in the process of being dismantled and the day-to-day handling of bk affairs is being shifted the typical revenue agent. This means dealing with agents that may not understand bk and a much slower process for resolving matters. Who knows, we may soon need to start filing those adversary proceedings just to get the process moving towards resolution. I sure hope not as such will just increase the cost of the bk - something consumers certainly do not need to happen.

Des.

[justbroke]

Translation... more red tape. I was hoping that you were going to write that it's more streamlined and there would be systematic and automatic releases based on certain criteria combined with a bankruptcy discharge.

Oh well... who doesn't like an Adversary Proceeding captioned as "Mr. Debtor V. United States of America", with an Assistant U.S. Attorney representing the IRS?

[butterfly57]

JB,

Thank you for the "plug". I do believe that, if a debtor has no assets of any real value and otherwise does not need a 13, the 7 is the way to go. Once discharged, communicating with the taxing agency to work out the release of the lien or an agreed sum to pay for the "secured" portion of the claim will work. This, of course, assumes that the taxes otherwise meet the test for dischargeability.

I do want to mention that my "45 day letter" may no longer assist in this endeavor because the IRS is restructuring how and who handles bk matters. It is my understanding that Special Procedures Function is in the process of being dismantled and the day-to-day handling of bk affairs is being shifted the typical revenue agent. This means dealing with agents that may not understand bk and a much slower process for resolving matters. Who knows, we may soon need to start filing those adversary proceedings just to get the process moving towards resolution. I sure hope not as such will just increase the cost of the bk - something consumers certainly do not need to happen.

Des.

So then does that mean a chapter seven may not be the way to go? If the IRS decides it doesn't want the lien to go away, then what? Also what about the state lien? I think this female attorney didn't want to take a "gamble" going the chapter 7 route. She felt it "safer" for me to go the chapter 13 route. My car is the only thing of any value at this point even though it's ten years old and needs repairs.

[despritfreya]

Unfortunately, without a proper attny-client consult, it would be difficult to be specific. As was suggested, it has been quite a while since you consulted with those other attnys. Before jumping into the 13, shop around. Me, I'm very comfortable with doing a 7 for my folks who have tax liens/dischargeable taxes and very little property without the need of filing an official complaint to have the court determine what is what.

If you go the 13 route, you could also discuss the possibility of converting to the 7 once both taxing agencies file their Proof of Claims. The POC will tell you what each thinks is their secured claim (the lien amount that needs to be paid) is vs. their general unsecured claim (that which does not need to be paid).

And. . . what's good for the goose is good for the gander. . . state and federal taxes should be treated the same but the secured status is first in time/first in right. So payment of that secured claim should depend upon which filed its lien first. Admittedly the issue of who gets paid what and when is more easily addressed in a Chapter 13 so, depending upon how much we are dealing with, a 13 may be better. Again, the specifics need to be discussed.

Des.

[butterfly57]

The state filed the tax lien about one year before the IRS. So I guess they are first in line. The state also froze my bank account but didn't get anything from it. Would you mind suggesting what specific questions I should ask of these attorneys when consulting with them? ( and explaining basically what the question means, so I understand what I'm asking of them), many thanks for your help.

[despritfreya]

Would you mind suggesting what specific questions I should ask of these attorneys when consulting with them? ( and explaining basically what the question means, so I understand what I'm asking of them)

It's not so much what questions to ask as it is what info you bring.

Get copies of both state and federal liens. Bring the liens and a complete list of ALL of your assets, including household goods, clothing, jewelry, vehicles, "toys", bank accounts, retirement plans, IRAs - basically everything. Place values on each item based upon garage sales, not replacement. If you owe money on something such as a home or vehicle, make sure you bring that information as well. With that information the attorney can determine the value of the taxing agencies "secured claim". He/she can then discuss with you how to proceed in providing payment on the "secured claim" and what the likelihood would be for either taxing agency to walk away from the secured claim.

It's simply a "numbers thing". If you owe $100,000 of dischargeable taxes and your property is worth $3,000 then the secured claim is $3,000 and you can eliminate $97,000 of the taxes. The question then becomes whether or not the taxing agency really wants to make you pay the $3,000 and/or argue over the value of the property. This will depend upon the revenue agent you are dealing with and the taxing agency's internal procedures.

Des.

[butterfly57]

It's not so much what questions to ask as it is what info you bring.

Get copies of both state and federal liens. Bring the liens and a complete list of ALL of your assets, including household goods, clothing, jewelry, vehicles, "toys", bank accounts, retirement plans, IRAs - basically everything. Place values on each item based upon garage sales, not replacement. If you owe money on something such as a home or vehicle, make sure you bring that information as well. With that information the attorney can determine the value of the taxing agencies "secured claim". He/she can then discuss with you how to proceed in providing payment on the "secured claim" and what the likelihood would be for either taxing agency to walk away from the secured claim.

It's simply a "numbers thing". If you owe $100,000 of dischargeable taxes and your property is worth $3,000 then the secured claim is $3,000 and you can eliminate $97,000 of the taxes. The question then becomes whether or not the taxing agency really wants to make you pay the $3,000 and/or argue over the value of the property. This will depend upon the revenue agent you are dealing with and the taxing agency's internal procedures.

Des.

I did bring all this information with me to the consultation yesterday with the 3rd attorney. She only looked at the tax lien information and she couldn't really come up with a solid figure of what I'd have to pay back monthly with a chapter 13. She fluctuated between $88 and $300 a month. I had all the info. from the house I'm on the deed with my ex-husband but she didn't want to see any of it and just asked me for what is owed. The fact it's in foreclosure is most likely why? Also, she said I'd have to sign my rights over on the house, which at this point is fine, I haven't lived in it since 2007. The vehicle is what has her concerned because it was paid off but my husband took a personal loan out against it 8 months ago since we were dead broke and needed to pay $2,000 for car repairs and pay for some medical bills and dental bills (my husband collects disability). We also were late on rent and many other issues. At that time I just agreed to the loan on the car out of desperation but the attorney explained that it would look suspicious to the trustee, which I understand. My husband is not claiming BK, just me, this tax debt is mine before I met him. The attorney is afraid that because of this new loan on the car that my allowed exemptions and wild card allowance would be thrown out and I'd owe the trustee the full book value of $12,000 (she pulled that figure up online, it more likely would be lower if we tried to sell it, it's in rough shape).

[butterfly57]

Also, one more question Des (and thank you so much for your help) after the BK is done with who deals with the taxing agency's....myself or the attorney?

[despritfreya]

More and more, once I have paved the way and I know the taxing agency only wants payment of the secured claim, I have my clients deal directly with the local office. I tell them to physically go to the local office and talk to someone. This usually results in a quick "settlement" - more so than dealing with someone in a far off state over the phone. I have no idea if such would work in North Carolina.

Edt. . . didn't see your post right after mine (above). . . will come back to it when I have more time to read it. Sorry



Des.

[despritfreya]

She fluctuated between $88 and $300 a month

That is too great a difference. She needs to clearly explain why she thinks there could be such a spread.

I'm on the deed with my ex-husband but she didn't want to see any of it and just asked me for what is owed. The fact it's in foreclosure is most likely why?

Yes. Without knowing the specifics, if the house is 1) not yours; 2) being “returned” to the lender; and/or 3) has no equity, the tax liens have no value as it relates to this asset in the context of a bankruptcy.

Also, she said I'd have to sign my rights over on the house

Can’t really comment on this as I don’t know the specifics of the divorce decree etc.

The vehicle is what has her concerned because it was paid off but my husband took a personal loan out against it 8 months ago.

I could see this as an issue especially if the tax lien was recorded before the vehicle was used as collateral for this new loan. The value of the vehicle (I think you said $12k) is one factor in determining the value of the taxing agency's secured claim.

As to the bk trustee, I see no issuewith the new loan so long as you can show the proceeds of the loan were used for legitimate purposes and for your benefit if the vehicle was solely in your name.

As to the exemption issue, this is where you need more than one opinion. That tax lien attaches to everything you own, including that vehicle and is not subject to any exemption. If you owe more than $12k in taxes related to the tax lien, I do not see a Trustee caring about the vehicle but as I do not practice in your state, I do not know the trustees or how they may try to “blackmail” you. Depending upon what other local attorneys say, you may be better off in a 13. The devil is in the details.

Des.