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A recorded tax lien gives the IRS/state a lot of leverage against you and your home. Chapter 13 can gain you back some of that leverage.


Stopping Tax Liens by Filing Bankruptcy

In our last blog post we showed how Chapter 13 can buy you more time and flexibility than Chapter 7. We showed an example how that’s especially true if you owe more than one year of income taxes. Our example assumed that two tax years met the conditions to discharge (legally write off) that debt, while another tax year didn’t.

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If you have an income tax debt that qualifies for discharge and also some tax debt that doesn’t, Chapter 13 is often your best option.

Stopping Tax Liens through Chapter 13

In our last blog post we showed how Chapter 7 might prevent an income tax lien from hitting your home. It stops the recording of the tax lien through the power of the “automatic stay,” which stop virtually all creditor collection activities. And then you get a discharge (write-off) of the tax debt. But then we added a twist: owing one or more additional tax years’ of debt which does not qualify for discharge. What if you have a tax that meets the conditions for discharge and one or more years’ that don’t? We showed how sometimes Chapter 7 can deal with this effectively, if the still-remaining tax debt is manageable.

But what if the taxes you still owe are not manageable? In a Chapter 7 case the protection of the “automatic stay” ends as soon as the case ends, usually just 3-4 months after it’s filed. So after that you could easily get a tax lien recorded against your home for the still-owed taxes.

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What if you have some income tax debt that qualifies for discharge but one (or more) tax year that doesn’t? Does Chapter 7 ever help enough?

Tax Liens under Chapter 7

Last week we showed how Chapter 7 can sometimes permanently prevent an income tax lien from hitting your home. It does that by stopping the recording of the tax lien, and then discharging (writing off) the tax debt.

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Filing a Chapter 7 case prevents tax liens from hitting your home, and so avoids a dischargeable tax from turning into one you must pay.

Our last blog post was about how filing a Chapter 7 case buys you time with debts on your home. It’s worth expanding on one of those Chapter 7 benefits, one that can go way beyond buying time. It could save you a lot of money, potentially many thousands of dollars.

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File your Chapter 13 “adjustment of debts” case at the right time to include all possible tax debts. Then budget right to prevent new ones.


Drastic Solutions for a Drastic Situation

Our last blog post was about what we called drastic solutions to a drastic change in circumstances. The changed circumstance was if a large new debt arises during your 3-to-5-year Chapter 13 case. Post-petition debts are those that arise after you file your case.

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