Bankruptcy filing itself is stressful, as you need to accept yourself that you haven’t been able to manage your finances efficiently. However, every time it might not be your fault of not managing finances in the proper way. Whatever be the situation, bankruptcy filing is stressful since you’re not aware of all the laws and procedures attached to it. One such thing is tax lien. If you’re thinking of filing a bankruptcy, you might be interested to know what happens to a tax lien after you file a bankruptcy.

Tax lien – What it means

Before you know what happens to your tax lien after you file a bankruptcy, you should have an idea regarding tax lien. A tax lien is imposed when you do not pay your federal and/or state taxes on time. However, you aren’t obliged to pay a tax lien just because you owe taxes. A federal tax lien can be imposed when the IRS (Internal Revenue Service) files a notice so as to get a federal tax lien against your property. The notice needs to be filed in the country you live or where you have the property. Once the lien is attached, it can stay in effect for a period of 10 years and is attached to all properties you own, be it real or personal. However, in case of state tax liens, the laws can vary from one state to another.

Read on to know what happens to your tax lien when you file a Chapter 7 or a Chapter 13 bankruptcy.

Tax liens after filing Chapter 13 bankruptcy

First of all, you should know that you can’t wipe out tax debts in a Chapter 13 bankruptcy. Like other unsecured debts, you repay the owed amount under a Chapter 13 repayment plan, for a period which usually varies between 3-5 years.

The amount of tax debt you need to pay depends upon whether it’s a nonpriority, unsecured claim or a priority debt. Usually, you have to pay a portion of your nonpriority claims, whereas, priority claims are to be paid in full.

Types of priority tax debts

Here’s a list of priority tax debts, which you need to pay in full, unless you can prove that you’re experiencing a severe financial hardship.

  • If you property tax was payable within a year before you filed for bankruptcy, it’ll be regarded as a priority tax debt
  • If a lien is attached to your property, then it’s considered to be priority debt
  • Taxes you need to withhold from your paycheck, such as, Medicare, FICA, income taxes, sales tax which your customers pay to you, etc.
  • Erroneous tax refunds
  • Nondischargeable taxes and or penalty incurred within 3 years before you filed for bankruptcy
  • Custom duties, employment taxes and excise taxes, depending upon specific time periods

Types of nonpriority tax debts

As already mentioned, you can get rid of these nonpriority tax debts, by paying a portion of it, if they meet all of the following criteria:

  • You should’ve filed your tax return at least 2 years before you filed for bankruptcy; it should not be a late tax return
  • It’s an income tax debt
  • The taxing authority should’ve assessed the tax at least 240 days before you filed bankruptcy
  • The tax return was due at least 3 years before you filed the bankruptcy petition
  • You didn’t commit any kind of fraud regarding filing the tax return

Tax liens after filing Chapter 7 bankruptcy

What happens to your tax lien when you file a Chapter 7 bankruptcy, depends on:

Whether the tax lien was filed before bankruptcy filing

A tax lien, filed properly before you filed for bankruptcy, remains in effect.

Whether the tax lien is filed after bankruptcy filing

Tax lien, filed after you filed for bankruptcy, usually comes under automatic stay protection. It means that the IRS cannot take any action to collect the debt through bankruptcy process.

However, in Chapter 7 bankruptcy, you need to pay a percentage of the tax lien, through the bankruptcy process. What happens is, a bankruptcy trustee is appointed to liquidate assets in order to repay the debt. So, the trustee sells the debtor’s assets to pay the creditors, including the IRS. It can collect money accumulated through selling of assets after satisfying the prior mortgage and other security interest.

In case there isn’t any asset of the debtor, which can be liquidated, the tax lien still remains on the property, even after the Chapter 7 bankruptcy case is over. If you, the debtor, want to wipe out the lien, then you’ve to work out a repayment plan with the IRS, in order to pay the due amount and get the lien released.


Author’s BioAmy Nickson is a web enthusiast. She shares her expertise through her crisp and well-researched articles based on money management. She loves social media, as it gives her endless opportunities to reach out to a larger audience in a more unbiased way.


Joseph F. Botelho, Esq.

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