Do Tax Liens Survive in Chapter 7?

By Tom Streissguth

If you fail to pay taxes, the government can slap a tax lien on your property. The lien gives the Internal Revenue Service or local taxing authority a claim on the amount you receive if and when the property is sold. Ordinarily, back taxes are a priority debt in bankruptcy, meaning the court will not discharge them. However, bankruptcy law allows some exceptions.

Priority Claims

Normally, a Chapter 7 bankruptcy will not discharge income or property taxes, which are priority claims. There are exceptions: Income taxes assessed more than three years before the bankruptcy filing, for example, can be discharged. Property taxes also survive a bankruptcy filing. However, if the property is sold through foreclosure, the property taxes due on the property remain with the property, not with you personally. The lien attaches to the property, and does not follow you after discharge if you should buy another home.


Chapter 7 will not cancel any IRS tax liens -- these remain priority claims even if the tax debt is more than three years old. Bankruptcy does halt any legal proceedings against you -- temporarily. After the discharge, the IRS may still foreclose on the lien, forcing you to sell the property. The IRS has a claim on any equity that remains after the mortgage is paid.

Ready to start your LLC? Start an LLC Online Now

Determining Lien Value

In order to clear off the lien, you must establish that it is not worth anything, or worth less than the value of your assets. You can do this by filing a Motion to Determine Lien Value. You will have to show that the equity in your home, or the value of your property, is less than the amount of the tax lien. If the lien was for dischargeable tax debt, then the court will reduce it to the amount of equity you do have available, or to zero if you have no equity.

Lien Survival

If the court does not act on a motion to determine lien value, then the IRS retains its lien no matter how much, or how little, equity you have in your home. In addition, the lien on the home will remain even after the bankruptcy is discharged. This will remain the case until the house is sold, or until the IRS fails to renew the lien after 10 years, the statutory limit on federal tax liens.

IRS Errors and Exceptions

There are also circumstances in which liens can be found invalid in bankruptcy. The IRS may have established an installment agreement with you for repayment of the tax debt. If you make timely payments, then the agency cannot assert a lien. In addition, if you can show that withdrawal of the lien will help you pay the back taxes (by making it easier to sell the home, for example), then the IRS may cancel it. Tax debts expire by statute after 10 years, so no lien can be asserted after this time has passed since the tax was due. If the IRS or any other agency files a lien after you petition for Chapter 7 bankruptcy protection, then the lien is barred by law.

Ready to start your LLC? Start an LLC Online Now
Can the IRS Levy Wages if You Are in Chapter 13?


Related articles

Chapter 13 Laws Regarding Income Taxes

Bankruptcy rules concerning the discharge of federal income tax debt are different depending on whether you file under Chapter 7 or Chapter 13. Because Chapter 13 is designed for debtors who have the ability to repay their debts over time, your will probably have to pay at least some of your outstanding tax debt.

How to Sell an Inherited House While Under Chapter 13

While inheriting a home can be a complex process, it can become even more complicated and lengthy if you're in bankruptcy. In Florida, for example, a probate case takes an average of four to eight months, depending on the circumstances, and then putting a house on the market can easily stretch this timeline further. If there are any challenges from other beneficiaries or heirs, this will further prolong the legal transfer of the property. When you file for bankruptcy, a court-appointed trustee takes control of your financial affairs and must approve the sale of any inherited property. Once the sale takes place, the proceeds are also subject to the trustee's oversight.

Can the IRS Charge Interest & Penalties While You're in Bankruptcy?

Bankruptcy rules and regulations – particularly regarding taxes – can be highly dependent on the chapter you file. Both Chapter 7 and Chapter 13 stop collection efforts by the Internal Revenue Service while you're in bankruptcy. Beyond this, however, each chapter treats tax debts differently.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

What Happens When a Bank Charges Off Your HELOC After a Chapter 7 Discharge?

If you file for a chapter 7 bankruptcy, you are asking a federal court to protect you from collection actions and ...

Will I Get Discharged From Bankruptcy If I Owe Taxes?

Many people filing bankruptcy are also behind on their taxes. Most taxes are not dischargeable in bankruptcy, but in ...

Can Creditors Attempt to Get Money After a Discharge?

When you file a petition for bankruptcy, you are asking a federal court for protection from creditors and time to work ...

Can Creditors Sell Debt to a Collection Agency After Bankruptcy Has Been Filed?

When you file for bankruptcy, you ask a federal court to protect you from collection actions and lawsuits by your ...

Browse by category
Ready to Begin? GET STARTED