Try to file bankruptcy before a tax lien gets recorded. But if you can’t, here are the effects of a tax lien under Chapter 7 and 13.

This blog post continues a series about the smart timing of your bankruptcy filing. (It was interrupted by two blog posts updating federal unemployment benefits.) The last in this series was about how good bankruptcy timing prevents you paying certain income tax interest and penalties. We ended with this: “The effect of a tax lien depends on whether the tax at issue qualifies for discharge, and whether you file a Chapter 7 or 13 case.” That’s today’s important topic.

Usually you can discharge—write off—an income tax debt by just waiting long enough. Here’s how to discharge a tax debt under Chapter 7.

Timing is Just About Everything

If you owe an income tax debt and file a Chapter 7 “straight bankruptcy” case, one of two things will happen to that debt:

Catching up on property taxes benefits both you and your mortgage lender. Chapter 13 helps you pull this off under much less pressure.

Slipping Behind on Property Taxes

If you’ve fallen behind on your mortgage payments, you’ve likely also fallen behind on your property taxes.

If you don't have much equity in your home, so that a tax lien eats up all that equity and then some, how can you get rid of that tax lien?

Our last 2 blog posts discussed your options if the IRS or state records a tax lien against your home. We first got into what happens if your home has no equity so that the tax lien does not attach to anything of value. And second we looked at your options if your home has plenty of equity so that there is more than enough to cover the entire amount of the tax lien.