<h2>New Jersey Bankruptcy Lawyer Explains How to Reduce Tax Liens In Bankruptcy</h2>
I have drafted numerous blogs explaining how tax debt is treated in a New Jersey bankruptcy case. This blog deals with how income tax debt may be partially eliminated, in the event that the taxing entity has filed a lien against the debtor in the county recording office.
In general, there are four criteria that relate to income tax debt, regarding the Internal Revenue Service and the State of New Jersey, Division of Taxation. If the four criteria are met, the tax debt becomes unsecured, which may be dis-chargeable in bankruptcy. No. 1. The date of the filing of the bankruptcy petition must be more than 3 years after the tax return filing due date, for such years return. No. 2. The date of the filing of the bankruptcy petition must be filed more than 2 years after the returns were filed for such year. No. 3. The date of the bankruptcy filing must be more than 240 days after such years taxes are assessed. No. 4. If the taxing authority filed a county lien against the debtor for such tax year, the tax liability for that year will be classified as secured and may not be dischargeable. If fraud is involved, the taxes for such year may not be discharged.
Criteria Number one above relates to when taxes are due. In other words, the returns for tax year 2012 are due on April 15, 2013. Criteria number three above relates to the date on which the taxing entity assesses the taxes for each particular year. The assessment date is typically the date on which the returns were filed. However, the filing date may not be the assessment date in various circumstances. Also, the same years taxes may be assessed, again, if the taxing authority believes that the return is inaccurate. Also, the 240 day period, may be tolled (delayed) if a payment agreement was entered into with the taxing authority.
If the taxing authority files a county lien against a person for a particular tax year, the tax liability for that year may be partially dischargeable. The filing of a county lien classifies the debt as secured. In general, a bankruptcy debtor cannot eliminate secured debt. However, a debtor may be able to reduce the amount of the claim that is classified as secured. Ultimately, the debtor only need to pay the secured portion of the debt and may possibly eliminate the unsecured portion of the debt.
Initially, the lien may only be reduced if the first three criteria listed above are met. I will explain how to reduce or “cram down” the secured portion of the IRS’s claim. For example, we will assume the following facts for income tax year 2011, in connection with an IRS tax liability of $15,000.00. The debtor filed his 2011 tax returns on time and filed his chapter 13 bankruptcy petition on March 17, 2016. The IRS filed a $15,000.00 county tax lien against the debtor, in 2014, for the tax year 2011. We will assume that the taxes are assessed on or about April 15, 2012 and no fraud was involved.
The debtor may attempt to cramdown the lien into a secured and unsecured portion. The secured portion of the lien must be paid in bankruptcy. However, the unsecured may possibly be eliminated (discharged) if he meets the bankruptcy criteria, which is explained, in numerous other blogs. The secured interest may be reduced by the equity in all of the debtor’s property, at the time of the bankruptcy filing. This means all and not some of the debtor’s property.
Lets assume that all of the debtors property values, at the time of the bankruptcy filing, is as follows: sofa-value of $300; refrigerator-value of $100.00; pencil-value of $.01; car-value of $1,000, with an auto financing payoff of $200.00; house-value of $200,000, with a mortgage payoff of $201,000; TV-value of $75.00. Based on the above, the total IRS.’s secured interest may be reduced to $1,275.01, with the balance of $13,724.99. This means that the total amount that must be paid to the IRS, through the bankruptcy plan is $1,275.01. The balance of $13,724.99 is classified as unsecured and may be eliminated based on certain criteria.
Robert Manchel is available to answer your NJ. bankruptcy law questions at 866 503 5644.