Tax Liens

Massachusetts Bankruptcy Lawyers Anthony Bucacci and Robert Simonian (508)673-9500


Tax Liens in Chapter 7 Bankruptcy

Find out if your tax lien will remain after Chapter 7 bankruptcy.

The primary reason people file Chapter 7 bankruptcy is to discharge, or eliminate, their debts and get a fresh start with their finances. Tax liens, however, are not discharged simply by filing bankruptcy. Tax liens continue in effect after a Chapter 7 filing until they are paid off or otherwise released.

This article will focus on federal tax liens. Similar principles apply to state tax liens. Laws vary from state to state, however, on specific issues such as how state tax liens are created and what property they cover.

What Is a Tax Lien?

A lien is a security interest, or claim, against specific property. A home mortgage, for example, is a lien against a residence. If you don’t pay the debt, the creditor can sell the property that is subject to the lien to get reimbursed.

A federal tax lien is like a mortgage, except that it secures your obligation to the IRS instead of a lender. A tax lien can be imposed if you fail to pay taxes on a timely basis. However, just because you owe taxes does not mean that you are subject to a tax lien.

How state tax liens are imposed. Laws vary between states as to what is required to impose a state tax lien.

How federal tax liens are imposed. The IRS file a notice in order to get a federal tax lien against your property. The notice must be filed in the county where you live or where the property is located. Once the IRS files its notice, it has a lien against all property — real or personal — that you own. The lien attaches to all property that you own from and after the date that the IRS files its lien. Federal tax liens continue in effect for up to 10 years after the IRS assesses the taxes that you owe.

What Happens to Tax Liens When You File Chapter 7 Bankruptcy

What happens to tax liens when you file for bankruptcy depends on whether or not the tax lien was in place before you filed for bankruptcy.

Tax Liens Imposed After Your Bankruptcy Filing

Filing Chapter 7 triggers a statutory protection known as the automatic stay. The automatic stay bars creditors, including the IRS, from taking action to collect most types of debt except through the bankruptcy process.

Among other things, the automatic stay bars the IRS from filing a tax lien postbankruptcy. This means that the IRS cannot impose a tax lien during your Chapter 7 case unless it previously filed a notice.

Tax Lien Notices Filed Before Your Bankruptcy Filing

A tax lien filed before your bankruptcy, however, continues in effect. The bankruptcy court cannot set aside a tax lien as long as it was filed properly before your Chapter 7 case.

Paying Off Tax Liens Through Bankruptcy

Tax liens may be paid, in whole or part, through the bankruptcy process. A bankruptcy trustee is appointed after you file Chapter 7 to administer and liquidate assets in your bankruptcy estate to raise money to pay your debts. In some Chapter 7 cases, debtors have assets that the trustee can sell to pay creditors, including the IRS. The IRS is entitled to any money raised through the sale of assets covered by a federal tax lien except to the extent there are prior mortgages or security interests.

Example. Say your house is worth $350,000 and is subject to a $100,000 mortgage and a $75,000 federal tax lien. Let’s assume that you are entitled to a homestead exemption of $100,000. If the bankruptcy trustee sells your home, the trustee would pay $100,000 to your mortgage lender and $75,000 to the IRS. The trustee would also pay you $100,000 for your homestead exemption. The balance of $75,000 would go to pay costs of sale and other creditors in your bankruptcy case.

When Tax Liens Are Not Paid Through Bankruptcy

Unfortunately, tax liens usually are not paid in Chapter 7 cases. Most Chapter 7 cases are “no asset” cases. In a no asset case, creditors receive nothing because there is no property that the trustee can sell for the benefit of the bankruptcy estate after taking into account secured claims (like mortgages and tax liens) and exemptions. Ordinarily, trustees will not attempt to sell property if all of the proceeds would have to be paid to secured creditors or the debtor.

Example. Let’s take the example of a house worth $200,000, with a $150,000 mortgage, a $25,000 federal tax lien, and a $100,000 homestead exemption. In most cases, the trustee would not try to sell the house, because there would be no proceeds available to pay other creditors after taking into account the mortgage, tax lien, and homestead exemption.

In this situation, the tax lien would still remain on your property after your Chapter 7 case is over. In order to get rid of the lien, you could sell the property and pay the IRS from the proceeds. Or, you could attempt to work out a payment plan with the IRS to pay the balance due and have the tax lien released. Simply filing Chapter 7, however, would not make the lien disappear.

Tax Liens on Personal Property

Tax liens also attach to personal property, such as cars and household furniture. In most Chapter 7 cases, trustees do not try to sell personal property, because it is either worth too little, encumbered by liens (like auto loans), or subject to exemptions. You have to continue to deal with tax liens that cover personal property you are able to retain after a Chapter 7 filing.

Dealing With Tax Liens After Bankruptcy

Generally, your options to deal with a federal tax lien that remains in effect after bankruptcy are as follows:

  • pay the tax lien and obtain a release
  • negotiate a payment plan or compromise to release the tax lien
  • redeem a specific item by paying its value, as determined by the bankruptcy court, to the IRS
  • pay the tax lien over time by filing for Chapter 13 bankruptcy after your Chapter 7 (this is often referred to as a “Chapter 20” bankruptcy), or
  • do nothing and gamble that the IRS will not take action to collect on its tax lien.

Taking no action can make sense when the value of property subject to a tax lien is relatively nominal and your personal liability for the tax obligation was discharged through your Chapter 7 filing. (Learn more about when tax debts can be discharged in bankruptcy.)

Source : nolo.com


Income Tax Debt & Bankruptcy

When you file for bankruptcy, you may be able to wipe out and discharge income tax debts depending on how old the tax debt is. Bankruptcy law has specific rules for how old an income tax debt must be in order for it to be discharged along with a few additional requirements.

Timing: Tax Return Was Due At Least Three Years Ago

The federal income tax debt that you are seeking to discharge must have become due, including all extensions, at least three years before the day you file for bankruptcy.

Example: You owe taxes on your 2015 and 2016 tax returns. Your 2015 tax return was due on April 15, 2016. To meet the three-year requirement for your 2015 taxes you must file for bankruptcy on or after April 15, 2019. Your 2016 tax return was due on April 15, 2017, but you requested an extension that expired on October 15, 2017. To meet the three year requirement for your 2016 taxes you must file for bankruptcy on or after October 15, 2020. Generally speaking it is always 3 years from when the tax became DUE not 3 years from the tax year filed.

Timing: Tax Return Was Filed At Least Two Years Ago

In order to discharge your federal income tax debt, you must have actually filed the tax return in which the debt was related to at least two years prior to the filing of bankruptcy. Tax debts related to unfiled tax returns are not dischargeable. You must file the return and although it satisfies the 3 year rule it has to have been filed for at least 2 years.

Timing: Tax Assessment Occurred At Least 240 Days Ago

The IRS must have recorded your liability and assessed it to you for the tax debt at least 240 days prior to the filing of your bankruptcy. This is known as a “tax assessment.” Often, the date you file your tax return is when your related tax debt is assessed. However, on occasion, the IRS can assess additional taxes later based on an audit. When this happens, you must wait 240 days from the assessment to discharge the additional taxes in bankruptcy. It is very important to know when the tax was actually assessed to you by the IRS and wait at least 240 days to file for bankruptcy.

No Fraud or Willful Evasion Requirement

If you committed fraud when filing your income tax returns you can not discharge the debt in bankruptcy. If you willfully evaded paying taxes, your tax debt will not be eligible for discharge in bankruptcy. You would have options to repayment in a chapter 13 bankruptcy.

Penalties, Interest and Tax Liens

If an income tax debt meets the rules and requirements discussed above, interest charges and penalties on that underlying tax debt will be discharged as well. If the IRS has recorded a tax lien against your property before you file for bankruptcy, the bankruptcy court cannot set aside your tax lien. After the bankruptcy, if the tax lien has not been paid off, the IRS lien will remain. Chapter 13 bankruptcy does offer you options with tax liens. You should consult a qualified and experienced bankruptcy attorney for legal advice.

Chapter 13 and Non-Dischargeable Income Tax Debt

If your tax debt is not dischargeable in bankruptcy, filing a Chapter 13 bankruptcy may still help you as it can make the process of paying back your debt easier. In a Chapter 13 plan you will need to pay your non-dischargeable tax debt over a 3 to 5 year period. The plan might offer better terms than an IRS installment plan and is usually an amount that is more comfortable than what the IRS proposes. It is important to remember that the automatic stay imposed by the bankruptcy court will prevent collection activity while you are in bankruptcy and provide you a lot of relief.

Massachusetts Evictions Unpaid Rent Bankruptcy

How bankruptcy helps with evictions and unpaid rent in Massachusetts.

The eviction moratorium is ending and unpaid rents are due.  How does bankruptcy help?

Generally, in most cases, a person threatened with eviction can move to a new place, list the past due rent in a bankruptcy petition and wipe out the unpaid rent.

Most people qualify for a basic Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, tenants in debt and an evicted person can list their debts, including unpaid rents, and all of those debts are wiped out except for certain priority debts like taxes, criminal restitution, child support, alimony and student loans. Unpaid rents are the kind of debts that are wiped out.

The unpaid rent can also be wiped out in a Chapter 13 bankruptcy.

Bankruptcy can help with evictions in Massachusetts for unpaid rent.  Here are a few different choices:

Eviction filing prepared before bankruptcy filed

Eviction proceeding not filed yet then property owners cannot evict a person for unpaid rent.  The bankruptcy automatic stay protects a renter from eviction for as long as it is in effect. When bankruptcy is filed before the eviction is filed a party  involved in an eviction is protected.  The landlord will need to file a motion to lift the automatic stay.  This would remove the bankruptcy protection and then the property owner can evict a tenant for unpaid rent. A renter would still owe rent for the time a tenant occupied the home after filing bankruptcy until the tenant moves out.

Move to new home then file bankruptcy

Example: rent has not paid due to the pandemic.  Tenant moves to a new home. Past due rent scheduled in the bankruptcy.  Unpaid rent subject to bankruptcy discharge. Fees subject to bankruptcy discharge.  Costs subject to bankruptcy discharge.  The bankruptcy does not affect the new rental agreement and the tenant can keep paying rent at the new home. In Massachusetts, bankruptcy can stop evictions for unpaid rent.

Eviction filed before bankruptcy filed

Eviction not presently allowed by a court.  The bankruptcy court can protect tenants. A tenant must move out immediately if the court awards the landlord an eviction.  This is if the tenant has not filed for bankruptcy protection and included the unpaid rent. This applies to Chapter 7 bankruptcy or Chapter 13 bankruptcy.  If a renter is facing possible eviction consider filing bankruptcy before the eviction date to get the bankruptcy court protection.  A tenant with unpaid rent will get more time in the home and allow the renter to search for a new rental property.

No eviction yet? File bankruptcy then move

If the renter has not paid rent in a while and the tenant needs to file bankruptcy right away the tenant can file bankruptcy and wipe out those unpaid rent amounts.  However the renter is liable for any fees, costs and expenses.  Rent incurred from the day of the bankruptcy filing until the day property owners force tenants to move out.  Unpaid rent is subject to bankruptcy discharge.  The tenant will be responsible for any rent due after the filing of the bankruptcy.

Call us today to schedule a free consultation or visit our websiteBucacci & Simonian

Massachusetts Bankruptcy Hearing

You most likely will be asked the following questions by the Bankruptcy Trustee at your Massachusetts Bankruptcy Hearing creditors’ meeting:

  1. State your name
  2. Address where you reside
  3. If you own or rent the property where you reside
  4. You will be shown a document you have signed and you will be asked whether the signature is yours.
  5. You will be asked for a photo ID such as a driver’s license or passport or any government identification and another with your name and social security number on it, such as a medicare card, social security card or W-2 form. You may not use a tax return to prove your social security number.
  6. Have you read the bankruptcy petition and schedules and is everything contained in it true and accurate?
  7. Have you owned any real estate in the past 4 years?
  8. Why did you file bankruptcy? You may be asked why or how you accumulated the debt. The must usual answers are medical issues, loss of a job, loss of income, birth of a child, divorce, or simply an accumulation of debt that you simply can not pay anymore.
  9. Do you presently own any real estate? Has anybody put your name on their home like a parent or child or relative?
  10. You will be shown Schedule B of your petition and asked if the items listed represent all your assets, and if you have any other assets you forgot to list or would like to add.
  11. Does anyone owe you money?
  12. Do you have any personal injury claims or other claims that you could bring against anyone?
  13. Have you injured yourself in an accident in the past 3 years or have you consulted an attorney for any other reason other than bankruptcy in the last 3 years?
  14. Where do you work and do you have income from other sources?
  15. How much do you take home from your job every pay period?
  16. You will be asked about your income whether you receive Disability, Social Security, Workman’s’ compensation and how much.
  17. Will you receive and inheritance from a will or trust in the next 6 months or have you inherited anything in the recent past?
  18. If you have listed any secured debt such as a car loan or a mortgage you may be asked if you are going to keep the car or house.
  19. Did you receive an income tax refund? How much did you receive or will you receive?
  20. Have you given away anything worth $1,000.00 or more to anyone in the past 2 years?
  21. Have you given any money to family members or friends in the last year or repaid any loans to family or friends?

The above is a list of the most common but not necessarily all the questions that will be asked at Massachusetts Bankruptcy Hearing. The most important advice is to answer all questions truthfully, honestly and briefly.

The hearing will be conducted by a lawyer acting as a Trustee on behalf of your creditors.  As your bankruptcy attorney, I will be in sitting with you and you will not be alone as it is usually the most important step in the process.  There are some very informative videos about the entire bankruptcy process.

There almost always are no creditors present and the entire matter will take no longer than 5 minutes or so.  We try to send any and all information that would be needed ahead of time so that your hearing goes quickly and smoothly.

Here is a video of a typical bankruptcy hearing:

Considering Bankruptcy Undecided or Unsure What To Do ?

Talk To Us About Your Options When Considering Bankruptcy :

Are You Considering Bankruptcy Undecided or Unsure What To Do ? We always tell potential clients to talk to us first to see if bankruptcy is in their best interest. The consultation is always free. Talk with Attorney Robert Simonian or Attorney Anthony Bucacci in private and in total confidentiality for expert bankruptcy advice and to see if filing bankruptcy in Massachusetts is right for you.

We can almost always come up with a solution to your financial problem. We have filed over 10,000 cases in the past 26 years and there are very few scenarios that we have not seen. The law firm Bucacci & Simonian is well known for their hard work, diligence, creativity and problem solving abilities. The law firm Bucacci & Simonian are the bankruptcy attorneys other attorneys come to with difficult cases. Call today to see what we can do for you and what options are available. Many are embarrassed about their financial problems and the situation regarding  bankruptcy. This is simply not true and many famous people have had to file for bankruptcy to get a fresh start.

Why Call Bucacci & Simonian When Considering Bankruptcy Filing :

We are known as one of the best bankruptcy attorneys in Southeastern Massachusetts serving the Bristol County and Plymouth County areas. Please inquire with anyone as to our reputation. Reputation is everything and we are very proud of ours. We have received numerous awards from various agencies and courts including the Bankruptcy Court in Boston, Massachusetts.

Using our knowledge and skill we have had several clients complete their five year Chapter 13 bankruptcy plans where they own their home FREE & CLEAR OF MORTGAGES. We understand how important it is to save clients’ homes from foreclosure, keep their cars from being repossessed and stop creditors from suing them and attaching their wages or attempting to seize their assets. This can be stopped almost instantly and we make every effort to be very available to your clients and can accommodate emergency situations. One of our important cases involved saving a client’s multi-family home.

What to Avoid When Filing Bankruptcy :

Do not attempt to file for bankruptcy on your own. You can make your situation much, much worse. If the bankruptcy petition is not correct you could lose your home, your car or possessions or you could be asked to file a different kind of bankruptcy where you have to make monthly payments when it could have been avoided. If you are not properly represented a bankruptcy trustee may foreclose on your house, allow your car to be repossessed, seize a tax refund or other assets. You could file under the wrong chapter, apply the wrong exemptions, fail to file all of the necessary forms or not understand the significance of important forms.

Protect Yourself:

Considering Bankruptcy Undecided or Unsure What To Do ? Call us today for a free and complete bankruptcy consultation. We can protect you from your creditors and protect your home, cars, jewelry and other assets. Creditors and collection lawyers have a job to do and it may seem that they are heartless and will take anything they can from you. They are represented and you should be too. Call us today. The Federal Bankruptcy Court suggests that seeking the advice of a qualified bankruptcy attorney is strongly recommended.

Common Myths About Filing Bankruptcy In Massachusetts

There are a lot of misunderstandings about filing for bankruptcy.  Credit consolidation companies can mislead people and credit card companies can mislead you so you continue paying high interest.  Many people rely on information that was true 25 years ago or from friends who have heard something from someone.  A lot of the information available on the internet is often very, very general and vague that it does not apply to over 95% of the cases and distorts the truth.

The following is a list of beliefs people have about filing bankruptcy that are SIMPLY NOT TRUE:

  • My Credit will be destroyed forever and I will never get credit again.
  • I will lose my house, my car and everything I own.
  • You can only have one automobile if you file bankruptcy.
  • If I have a car loan or a home mortgage I have to give up my car and home.
  • The whole world will know I filed for bankruptcy.
  • If you are married both husband and wife must file for bankruptcy.
  • Only bad people file for bankruptcy.
  • Filing for bankruptcy is too expensive and I can not afford a lawyer.
  • Even if I file bankruptcy I heard you have to pay everything back.
  • It is difficult to file for bankruptcy and they changed the laws to make it difficult.
  • I will never be able to own anything or have money in the bank after filing bankruptcy.
  • You can only file bankruptcy once in your lifetime.
  • You have to have some minimum amount of debt to file bankruptcy.
  • You can not discharge IRS taxes or State taxes in bankruptcy.
  • I will lose all of my future tax refunds.
  • I can be fired or lose my job if I file bankruptcy.

All of the above are common beliefs that people think are true about filing bankruptcy.  They are simply NOT TRUE.  It is important to speak to an experienced bankruptcy attorney for real answers to your questions.  It becomes very difficult to make a decision when you hear all kinds of information from unreliable sources.  We are available to accurately answer your questions and concerns anytime.