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Tax Liens

Tax liens are a tactic utilized by tax agencies to collect on past debts. During a bankruptcy hearing, tax debts may become secure if the taxing authority obtains a tax lien. Tax liens are most often placed on homes and it applies to the equity on the property. A tax lien cannot be removed by a bankruptcy filing, but a debtor’s liability to pay the tax may be released if all other requirements are met. This means that the taxing authority may sell off the debtor’s assets and property that is not exempt. In such cases, only the property and items owned at the time of filing will be considered.

Secured and Unsecured Tax Liens

Tax liens are only secured to the extent that there is value in the property in question. If a tax lien is put on a debtor’s home for $40,000 but there is only $30,000 worth of equity available on the property, then $30,000 will be secured and $10,000 will be unsecured. As long as the tax is not a priority tax, the unsecured portion of the tax lien will be discharged in bankruptcy. Secured tax liens are generally not discharged in Chapter 13 bankruptcy payment plans.

Do Tax Liens Survive Bankruptcy?

Every case is different. Unsecured tax liens will often be discharged. Secured tax liens can survive bankruptcy, but the IRS will only pursue repayment further if there is equity available. If the remaining assets after a bankruptcy include only furniture and clothes, then it is unlikely that the IRS will continue their secured tax lien.

Creditors and Exemptions

In many ways, the IRS is simply considered another creditor during a bankruptcy hearing. Past debts may be settled through bankruptcy and the IRS typically accepts bankruptcy decisions to settle disputes.

You cannot have your debts removed without losing personal items that have value. Creditors will seek payment for debts by obtaining and selling valuables that are not protected under federal exemption laws. Property that is exempt from federal tax seizure include:

  • School books
  • Clothes
  • Up to $6,250 of household furniture, effects, fuel and livestock.
  • Up to $3,125 worth of tools of trade and books
  • Workers compensation benefits
  • Unemployment benefits
  • Military disability benefits

Understanding the pros and cons of bankruptcy is the best way to know if it is right for you and your family. Having your debt removed can be a great way to start over and relieve yourself of financial burdens. It can also mean that you lose many of your belongings and whatever credit privileges you may have acquired over the years. The decision to file for bankruptcy should not be taken lightly and it should be done with the assistance of a trained and experienced professional.

Contact a Bankruptcy Lawyer in New Jersey

If you are considering filing for bankruptcy in New Jersey, please contact the law offices of Robert Manchel to examine and evaluate your financial options. Call us at 866-503-5655 for a no-cost consultation today.