It is not considered a criminal act if you fall behind on your taxes because you are experiencing financial difficulties. However, this is not to say that doing so does not come with its fair share of consequences. Namely, the Internal Revenue Service (IRS) may go as far as imposing a tax lien on your property. Follow along to find out the possibility of having a bankruptcy filing eliminate tax liens on your property and how a proficient Louisville, Kentucky Chapter 7 bankruptcy lawyer at Schwartz Bankruptcy Law Center can work to protect your property.

What should I know about tax liens on my property?

Simply put, if you are a homeowner who fails to pay the taxes on your property, then the city or county in which you reside has the authority to place a lien on it. A tax lien on your property is essentially a legal claim to the unpaid amount of taxes that is owed. Meaning that you are inhibited from selling or refinancing your property until you pay off your back taxes and subsequently have the lien removed.

Can a bankruptcy filing eliminate tax liens on my property?

Unfortunately, a tax lien on your property cannot be directly eliminated upon your Chapter 7 bankruptcy filing. For example, say that a tax lien worth $50,000 is placed on your property. Then, say that your property holds equity worth $25,000. Well, this means that $25,000 worth of your property may be considered secured debt while the other $25,000 is unsecured debt. In other words, this $25,000 worth of unsecured debt may be discharged in your Chapter 7 bankruptcy proceedings.

Further, you must understand that your other tax debts may be eligible for discharge. This is so long as the following circumstances are true:

  • Your tax debt is made up of your income taxes.
  • Your tax debt is at least three years old.
  • Your tax debt is unrelated to any fraudulent attempt to escape your tax duties.
  • You filed a tax return for your tax debt at least two years before you filed your Chapter 7 bankruptcy petition.
  • Your tax debt must have been assessed by the IRS at least 240 days before you filed your Chapter 7 bankruptcy petition.

It must be reemphasized that even if you qualify to have your tax debts discharged in a Chapter 7 bankruptcy filing, the tax lien on your property remains. That is, you may still live in your house during your bankruptcy proceedings, but you cannot sell it to pay off your due creditors without first paying off the lien.

There may be many benefits in a bankruptcy filing, so long as it is first carefully considered. So please seek the assistance of a talented Louisville, Kentucky consumer bankruptcy lawyer from Schwartz Bankruptcy Law Center. We look forward to having a conversation with you.