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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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We owe income tax for 2007. We filed our return in October

Customer Question

We owe income tax for 2007. We filed our return in October 2008. We are buying a home, but there are more liens on it than what it's worth, but we do plan on staying in our home. The IRS did file a lien with the county for the taxes we owe. We have an additional 60,000 in credit card debt. How long do we have to wait to file bankruptcy to include the tax, & will the lien filed with the county still exist, leaving IRS to collect if we ever sell our home?
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 4 years ago.
Hi mrssmith,
If there was no tax lien already in place you would be able to file a Bankruptcy after October 15, 2011 (3 years from the date the income tax return is due, including one 6-month extension).
However, because there is a lien on your house, the income tax debt will be treated as secured debt, and only the portion that is not covered by the lien (the unsecured portion) is dischargeable. In other words, the lien remains on the home, ready to be satisfied when the house is sold, or possibly resulting in a forced sale if the home equity ever exceeds the Homestead Exemption.
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
cfortunato and 3 other Bankruptcy Law Specialists are ready to help you
Customer: replied 4 years ago.
Thank you for your answer. I am not sure if the lien is filed against my home or if they just filed a general lien with the county. All of a sudden I started getting "we can help you with tax debt" notices in the mail, noting the exact amount we owe. So as long as any lien is filed, sooner or later, they will collect the lien amount, correct? Would a compromise settlement help me with IRS? Also, I have a 401k, if I file bankruptcy, will those funds be an issue?
Expert:  cfortunato replied 4 years ago.
T

Edited by Christina Fortunato, Esq. on 7/2/2010 at 11:21 PM EST
Expert:  cfortunato replied 4 years ago.
Thank you for accepting my answer, which I just read, and want to clarify.
You do not have to wait until after October 15, 2011 to file. I meant to convey the message that if you want to have any of the income tax discharged - which might not be possible because of the lien - you would have to wait until after October 15, 2011.
If the lien is not actually attached to the home, the tax can be discharged.
If the IRS has a lien, that does not mean the tax will be collected eventually. This would depend on whether there is enough income and/or assets for them to garnish.
An "Offer in Compromise" (OIC) can help if you can prove that your financial situation is unlikely to change within the next 5 years. Also, submitting an OIC "tolls" (extends) the 3-year period one has to wait to have the taxes discharged in a Bankruptcy.
401K pensions are exempt from the Bankruptcy estate, so these are not affected by a Bankruptcy.
Customer: replied 4 years ago.

Can the IRS lien be filed with my county without it being a lien on our home?

Expert:  cfortunato replied 4 years ago.
A lien cannot exist on its own - it must be attached to something.
Customer: replied 4 years ago.
So, since I know there is a lien, there is no need to wait to file bankruptcy? What about the interest & penalties? What should I do about the lien, since I have no money to pay the taxes & I am almost 60 years old. The possibility of finding gainful employment at my age is slim.
Expert:  cfortunato replied 4 years ago.
What is the market value of your home, minus the balance - if any - on the mortgage?
Customer: replied 4 years ago.
My home is worth about 240,000, I have a first TD for 110,000 & a lien from an attorney for a previous legal case for about 175,000. So the total of the leins are about 285,000, I know I am upside down on my home.
Expert:  cfortunato replied 4 years ago.
How much is the tax lien?
What is your source of income (employment, pension, etc.)?

Edited by Christina Fortunato, Esq. on 7/3/2010 at 12:37 AM EST
Expert:  cfortunato replied 4 years ago.
Also, what is your source of income (employment, pension, etc.)?
Customer: replied 4 years ago.

I owe 25,000 + penalties & interest, I don't know how much it has increased so far. I have been making $100.00 per month payments for about a year, which so far they have agreed to. We also owe the State of California 17,000.00, we just began making monthly payments to them this month, they have no lien against us as far as I know.

 

I have been on unemployment for over a year, my benefits have suddenly stopped this month due to the politics surrounding unemployment. My husband works 2 part time jobs & YTD gross is about $6,000.00. I am 59 & my husband is 58.

 

Expert:  cfortunato replied 4 years ago.
Since you have a mortgage and a prior lien, IRS would be third in line to obtain anything if the house is sold. IRS can also garnish bank accounts. But they won't do this if you continue to make the agreed-upon monthly payments, at least until October 15, 2011.
Customer: replied 4 years ago.
So, since there a lien against our home that is upside down, if I wait until Oct 2011, can I list the taxes owed to IRS on a bankruptcy & will the bk eliminate those taxes & remove the lien?
Expert:  cfortunato replied 4 years ago.
Yes - since the house has no equity, that means the lien is not effectively attached to anything, and can be discharged in a Bankruptcy proceeding.
Customer: replied 4 years ago.
Thank you so much for you answers. We find ourselves in this horrible position at almost time for retirement & just had no idea which way to turn. You have helped us with many of our upcoming decisions.
Expert:  cfortunato replied 4 years ago.
You're welcome!

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