Federal Tax Lien Continues to Encumber Residence after Taxpayer’s Bankruptcy Discharge 
8/8/07 
8/21/04
- Collection Options:
- extension up to 120 days to pay taxes in full
- currently not collectible (hardship) status – delay collection until financial condition improves
- installment payments
- bankruptcy
- expiration of Statute of limitations
- offer in compromise – settle for less than full payment
- See also: collection standards
- financial Information forms
- collection due process hearing right
- IRS Taxpayer Advocate Service (TAS)
- IRS Form 911 – Request for Taxpayer Advocate Service Assistance/ hardship relief
- Low Income Taxpayer Clinic (LITC)
- determining the correct tax
- audits / recordkeeping
- IRS correspondence audits
- notice of deficiency
- Tax Court
- what if you haven't filed returns
- trust fund recovery penalty
- what if you can't pay your taxes
- what if my spouse owes taxes but I don't
- can I really settle for pennies on the dollar ?
- innocent spouse relief
- injured spouse relief
- tax liens & levies
- subordination of lien
- can the IRS take my house
- abatement of penalties
- discharge of property from lien
- subordination of IRS lien, e.g., to refinancing
- bankruptcy doesn't remove a tax lien even after the tax is discharged
- trust fund recovery (responsible person) penalty
- private party (non-IRS) debt collectors
- tenancy by the entirety protections US v. Craft
Taxes are generally not dischargeable in bankruptcy, but certain income taxes may be discharged. With the bankruptcy discharge, taxpayer (debtor) is no longer personally liable for the tax debt the lien secured,
BUT, a federal tax lien survives the bankruptcy and continues to encumber property, typically taxpayer’s residence. A federal tax lien usually survives discharge only when a notice of federal tax lien has been filed, and only to the extent the lien is secured by property that was exempt or excluded from the bankruptcy estate, or abandoned by the trustee. While the IRS is unable to collect from taxpayer, it can seize and sell the affected property to satisfy the tax debt.
See Miles, TC CCH Dec. 57,026(m), Fed ¶48,145(m) (2007), Chapter 7 bankruptcy discharges taxpayer personally, but does not extinguish the prepetition tax lien against taxpayer's interest in IRA.
An IRS tax lien may be subject to "lien stripping" (liens reduced to the property value) in Chapter 11. The Supreme Court had held that a tax lien on real property could not be stripped down in Chapter 7 liquidation case. The Bankruptcy Court in Johnson v. IRS, Bktcy Ct PA, 101 AFTR 2d 2008-1798, held the IRS lien against Chapter 11 debtor's residence was null and void pursuant to 11 USC 506 because other priority liens pre-dating the IRS lien collectively exceeded residence's fair market value (FMV), so there was no equity in residence to which IRS lien could attach. The Bankruptcy Court held that in the Chapter 11 reorganization context, lien stripping is “ingrained” and crucial to achieving the Bankruptcy Code's rehabilitation and fresh start goals, and there was nothing inherent in an IRS lien allowing it to be treated differently from any other lien so as to be exempt from lien stripping. 5/8/08