Bankruptcy and Tax Liens. Discharged? | FilingForBankruptcyOnline.com

Tax liens are claims to tax debt prior to a debtor’s filed petition for bankruptcy. The two most common forms of bankruptcy, Chapter 7 and Chapter 13 have very different results overall, and this holds true for tax debts.

Will Filing for Bankruptcy Stop a Tax Lien?

The only tax debts that may be stopped by bankruptcy are those acquired during a bankruptcy. Discharging debts is primarily accomplished through Chapter 7 bankruptcy, as other forms require that debts be retained and repaid by the debtor according to the arranged repayment plan. However, a tax lien cannot be stopped by filing for Chapter 7. Once a tax debt has been acquired, it cannot be removed, unless over four years old.

How to Discharge a Tax Lien in Bankruptcy?

There is no way to discharge a tax lien in bankruptcy, unless older than four years. This limitation was only recently increased from three years, according to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Other requirements for discharging those debts are a currently filed tax return, passing the “240 day rule,” and that the tax debts are for income taxes. The 240-day rule is associated with IRS assessments. A tax debt may only be discharged if it has been assessed within 240 days of the bankruptcy filing, or if the tax debt has never yet been assessed by the IRS.

Will Tax Liens Be Removed after Bankruptcy?

Only when the requirements previously stated are met, can tax debts be removed. Tax liens may not be removed after any form of bankruptcy. Though Chapter 7 bankruptcy is appealing to those deep in debt because of the possibility for a fresh start, all taxes will remain afterwards, except for income tax debts of debtors that meet those requirements. In general, one should expect to repay all taxes no matter what.

Getting Legal Help

To account for these complexities, it is highly recommended to seek professional legal help. Specialized bankruptcy attorneys are familiar with all forms of debt, any state specific laws, and are skilled at assessing financial situations to create the most effective recovery plans.

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