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Understanding Tax Liens and Bankruptcy

Posted By Allmand Law Firm, PLLC || 23-Jun-2017

Eliminating certain types of debt through a discharge is one of the hallmarks of the bankruptcy process. A debt discharge will eliminate your personal obligation to pay a debt, which can free resources and provide the financial fresh start you need to get a hold of your finances and find stability in your future.

Because many people are aware that a debt discharge exists at the end of a Chapter 7 or Chapter 13 bankruptcy case, but may not be certain as to how it specifically works or what debts it can discharge, our Dallas bankruptcy lawyers at Allmand Law Firm, PLLC work closely with clients to educate them about the process, the laws, and what applies to their unique situation.

For the most part, we always explain that unsecured debts are dischargeable in bankruptcy, the most common of which is credit card debt. Secured debts, on the other hand, are not. These debts backed by collateral include home mortgages and car loans, and they are voluntarily incurred. Liens, however, are involuntary debts, and they imposed by law.

Most tax liens cannot be discharged in bankruptcy, including federal tax liens, which means you will continue to owe them at the end of a Chapter 7 case, or repay them in full as part of your payment plan in a Chapter 13 case. Bankruptcy unfortunately does not wipe out tax liens recorded prior to filing. While a debt may be wiped out, a lien on your property that is recorded prior to filing will remain on the property.

However, there may be cases where certain debts for federal income taxes may be wiped out in a Chapter 7 case. In order to be eligible for a discharge under Chapter 7, all of the following must apply:

  • The taxes are income taxes
  • There is no evidence of fraud or evasion
  • The debt is at least three years old
  • You filed a tax return for the debt at least two years prior to bankruptcy
  • You were assessed by the IRS at least 240 days prior to filing

Because issues involving tax liens and bankruptcy can be complex, and because your options depend largely on the unique facts of your situation, it is best to review the details of your finances and goals with an attorney who has experience guiding clients through the bankruptcy process. Our legal team at Allmand Law Firm, PLLC do precisely that, and we are readily available to provide you with a free case review to review your options and discuss what we can do to help.

To request a FREE financial empowerment session, contact us today! We proudly serve residents throughout the Dallas – Fort Worth metroplex.

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