Effect of Chapter 7 Bankruptcy
  • June 16, 2021
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Chapter 7 bankruptcy is the most commonly preferred type of bankruptcy for most taxpayers as it is a fast process and taxpayers do not need to pay back any debts they owe to the IRS. It takes about four to six month to process from the date of filing a chapter 7 bankruptcy. As of December 2020, the cost of filing was $330, and you usually need to visit the courthouse only once to file and get it processed.

Who Can File Chapter 7 Bankruptcy?

Not everyone is eligible for a chapter 7 bankruptcy discharge. If your gross income is less than the median income of your state, you will qualify for the discharge. If the gross income is higher, you may qualify if there is not enough left over to complete a chapter 13 repayment plan after you pay all allowed monthly debts. If you have received any type of bankruptcy discharge in the last six to eight years, you cannot file for chapter 7 bankruptcy.

Related Blog Post: Answering Commonly Asked Questions about IRS Penalty Abatement

Impact of Chapter 7 Bankruptcy on Tax Liens

A federal tax lien is a claim by the IRS against a specific property when a taxpayer fails to pay outstanding taxes. If you are the subject of a federal tax lien from the IRS and you file for Chapter 7 bankruptcy, it triggers a statutory protection known as an automatic stay. It bars the IRS from taking any collection action for most debts and filing a tax lien after the bankruptcy. If, however, a lien was filed by the IRS before the bankruptcy, it will stay in effect.

How to Pay Off Tax Liens through Bankruptcy

Filing for bankruptcy helps taxpayers pay tax liens in whole or in part. Once you file for Chapter 7, a bankruptcy trustee is appointed to liquidate the assets that are mentioned in the bankruptcy estate. This helps raise money to pay outstanding taxes. The IRS can claim the money raised through the sale of property that is covered by a federal tax lien.

Related Blog Post: All You Need To Know About The Innocent Spouse Tax Provision

What If Tax Lien is Not Paid Off through Bankruptcy

Unfortunately, you may not be able to pay off your taxes through Chapter 7. In most Chapter 7 cases, there are assets to liquidate and the tax lien will continue to be in effect on the property even after the Chapter 7 case is closed. You have the option to sell some property and pay the IRS and get the tax lien removed. You can also work out a payment plan such as installment agreement or an Offer in Compromise to pay the balance and have the tax lien released.

Wrap Up

Handling Bankruptcy and tax liens can be a tricky task that requires a great deal of knowledge and expertise. Any mistake in your paperwork can lead to further problems with the IRS. It is recommended to get professional tax lien assistance from an experienced tax attorney. If you are looking for tax lien help in Dallas and nearby areas, look no further. The experienced team of tax attorneys at The Law Offices of Nick Nemeth has a proven track record of helping clients in handling various IRS issues to get favorable outcomes. To speak to one of our IRS tax attorneys, call (972) 426-2553 or fill out our contact form, and we will take it from there.

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What Our Clients Have to Say

Susan WilsonSusan Wilson
03:27 25 Jan 23
I have been very pleased with the solid counsel and guidance that Nick Nemeth has provided me regarding my tax issue. I found him to be honest and straightforward which I appreciated. I was impressed with his relevant experience and knowledge . He has definitely brought me peace of mind during a difficult and stressful time.
Sarah HowardSarah Howard
03:44 14 Nov 22
I would like to thank Mr. Nick and his staff for the superb help that I received from them. My IRS problem was resolved quickly and efficiently. It took 2 visits to convince me that I was over my head. I thought that I could call the IRS, appeal my tax notices and settle on a payment plan on my own. After many phone calls to the IRS, waiting sometimes more than 4 hours with no resolution to speak of, it proved to be extremely difficult and stressful. Revisiting Mr. Nick was a huge wake up call. My account was reviewed, and a payment plan was established with the IRS within a week. I will be forever grateful to the staff who worked on my case and especially to Lorna who listened to me vent while going through this painful process.
00:33 07 Aug 22
I cannot say enough good things about Nick and his team. When I first met with Nick he was up front, honest, friendly and efficient. When I worked with one of his attorneys, Eric B, I was just as pleased. All of the staff there are nice and very helpful. I wish I hadn't waited so long to get help with my issue. Over 6yrs I tried getting through and getting anywhere with the IRS and hardly made any progress. I know this may not be the case for all, and even I thought it would take longer than it did, but 3mos and they had my situation straightened out. I still can't believe it. Thank you thank you THANK YOU for all that you did for me. This is a huge burden gone out of my life now thanks to you. If anyone needs help out there, I know you may not want to shell out more money to get their help but it may just save you in the long run.
Spoilly GirlSpoilly Girl
23:49 03 Aug 22
The Nemeth Law team is exceptional. They treat their clients like a family member who is in crisis. They want you to get the best possible outcome. I really appreciate everything that they did for me. Jake and Ashley had the greatest role in my case and it all turned out for the best for me. Thank you Nick and team for easing my fears and getting me through the long process. I'm truly grateful.
Eddie WaltEddie Walt
19:44 12 Jul 22
During a time in which competent, professional service at a fair price seems to have disappeared, Mr. Nemeth and his team are a refreshing breath of fresh air.From my first phone call to the final settlement of our case with a non-responsive IRS, they under-promised, over-delivered and were in constant courteous contact to make sure we knew exactly what was happening and where we stood.I hope to never need their services again, but, should I receive another friendly letter from the IRS...I know who to call!
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