Tax liens, since they are an interest in the
taxpayer's property, are not affected or discharged by a Chapter
If the tax is otherwise
dischargeable, the taxing authority's claim after the discharge
is limited to the property to which the lien has attached as of
the commencement of the case. Debtors can file a motion in the
bankruptcy proceeding to have the court value the lien, if it is
likely that the value available to secure the lien is less than
the amount of the claim secured by the lien.
A lien for a dischargeable tax, even if it
attaches to some assets owned when the bankruptcy is filed, does
not attach to assets acquired after the bankruptcy.
If the asset is one that loses value over time
rather than gains value (such as household goods), discharged
debtors sometimes just ignore the lien after discharge. They
expect the asset will, over time, become worthless and the
taxing authorities are unlikely to enforce a lien on personal
property. Some personal property is even exempt, under IRS
statutes, and the IRS cannot levy on it.
Tax liens in Chapter 13
In Chapter 13, tax liens may be paid off
through the plan. Remember that a lien is a secured claim only
to the extent of the value of the property to which it
If the lien does not attach to any
value (that is, the taxpayer does not have assets with equity
for the lien to attach to), Chapter 13 may be used to eliminate
the lien and force treatment of the tax claim according to its
classification as either a priority or non priority claims.
(That is, if the lien doesn't attach to any value, then it is
treated as an unsecured claim: priority if it
is recent or a trust fund tax, or unsecured and
dischargeable if it is not).
If the lien attaches to an
appreciating asset, like a home, Chapter 13 can freeze the value
of the lien at the values as of the filing of the bankruptcy.
Future appreciation, even during the Chapter 13 repayment plan,
is free of the lien.