What Happens to a Federal Tax Lien After Chapter 7 Bankruptcy?

By Jackson Law Group
July 29th, 2013

Posted in Asset Protection,Tax Law & IRS Defense

Many taxpayers assume that the IRS cannot collect for income taxes that were owed prior to, but discharged in, a Chapter 7 bankruptcy.  That is not always the case.  It is true that the Chapter 7 bankruptcy discharges the IRS claim as to personal liability (assuming all elements for dischargeability are met); however, many times the IRS will record a federal tax lien for the amount(s) owed.  If the federal tax lien is recorded prior to the bankruptcy, it will usually survive a Chapter 7 discharge.  A tax lien that was recorded prior to the Chapter 7 bankruptcy attaches to most pre-bankruptcy property, including property that would otherwise be exempt from creditors under Florida law such as a taxpayer’s homestead, IRA, or 401(k).  The lien gives the IRS the ability to seize or demand payment up to the value of the secured property after bankruptcy.

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