If you owe more than you can afford, it’s likely that bankruptcy has crossed your mind, and for good reason! After all, bankruptcy is a powerful process that helps hundreds of thousands of Americans each year. Unfortunately, there are some types of debt which bankruptcy may not remove. This can make deciding if and when to file for bankruptcy even more complicated.

If you owe significant back taxes, you may be at risk of facing a tax lien on your assets. Tax liens are non-dischargeable through bankruptcy, but there may still be reasons to delay filing despite that risk. You can read on for an overview of the relationship between bankruptcy and tax liens, but you may wish to speak with a Brownsville bankruptcy lawyer like those at the Law Offices of Phillippe and Associates prior to filing to ensure the strength of your petition.

What is a Tax Lien?

The government has many tools that they can use to collect taxes. One such tool that can complicate citizens’ bankruptcy filings is known as a tax lien. A tax lien is a legal claim placed by the government against the assets of an individual or business who fails to pay their taxes. The tax lien serves as a guarantee of payment, meaning that if payment is not completed, the debtor’s assets may be seized.

Tax liens can be attached to all of the debtor’s assets, including any assets they acquire after the lien was placed. Assets which may face a tax lien include:

  • Properties
  • Vehicles
  • Securities
  • Business property
  • Accounts receivable for said business

Most apparel and a certain amount of household furniture, however, is exempt from tax liens.

Bankruptcy’s Effect on Tax Debt and Liens

There are three primary types of bankruptcy that individuals and businesses can file in the U.S.: Chapter 7, Chapter 11, and Chapter 13. Each has a unique effect both on your financial outlook moving forward, and any tax liens you may be under.

Chapter 7

Chapter 7 bankruptcy can be very helpful for debtors who owe taxes, but it will not remove a tax lien on your assets. This means that if you file for Chapter 7 and are successful, your tax debt may be removed, but your property will still be under the lien. This effectively means that you will still need to pay the lien or reach a settlement with the IRS in order to sell or refinance the property.

Chapter 11

Businesses wishing to file bankruptcy often file under Chapter 11. However, Chapter 11 may be less helpful for those who owe tax debts. Under this chapter, these debts are considered “priority” and often must be paid in full. Like Chapter 7, Chapter 11 will also not remove any tax liens against your property, but if your business is struggling and there are liens against your business assets, bankruptcy may still be a helpful option. In this particular case, we recommend seeking the assistance of a dedicated and experienced Brownsville bankruptcy lawyer prior to filing.

Chapter 13

Chapter 13 is a way to restructure your debt in order to pay off as much of that debt as possible over the course of 3 to 5 years. Tax debts may be dischargeable under Chapter 13 depending on their type, unsecured or secured. However, even if all of your tax debt is discharged, any tax liens against your assets will remain. Again, in order to get rid of the lien, you will need to pay off the debt or come to an agreement with the Internal Revenue Service (IRS).

Timing Your Bankruptcy Under a Tax Lien

There are many factors at play when it comes to timing your bankruptcy filing in relation to your tax debts. In general, it is best to file before the IRS has placed a lien against your property. In these cases, it wouldn’t exactly matter if tax liens aren’t dischargeable. However, there also may be reasons to delay filing when you already owe a significant tax debt.

Of course, some individuals wait to file for bankruptcy until after there is a tax lien on their property simply because they hadn’t yet spoken to a lawyer. Those who do seek the advice of a bankruptcy lawyer may be advised to wait to file even if there is some risk that a lien could be placed. For instance, it may be necessary to wait until the debt meets the requirements for discharge. If you have been advised to wait to file, it’s important that you understand the impact a potential tax lien could have on you and your finances.

How Tax Liens Can Affect You

A tax lien can only be placed if you have shown no sign of making an effort to pay your owed taxes. Once a lien is in place, the only way to remove that lien is by fully paying the tax you owe or negotiating a settlement with the IRS.

If there is a lien on your assets, it will be reflected on your credit report for up to 10 years after it is removed. This can damage your credit score and your likelihood of approval on applications that rely on a credit check. You also will not be able to sell or refinance any assets under a tax lien. If you fail to reach an agreement with the IRS, a tax levy may be used to seize your assets on behalf of the government.

Seek Relief With the Help of the Law Offices of Phillippe and Associates; Experienced Brownsville Bankruptcy Attorneys

There’s no denying that finances can get very complicated very quickly. This complication can contribute both to a person’s likelihood to go into debt and their ability to emerge from that debt. If you’re struggling under debt you can’t pay, it might be time to get help from a dedicated Brownsville bankruptcy lawyer.

If you have significant tax debt or are facing a tax lien, our bankruptcy lawyers at the Law Offices of Phillippe and Associates would be proud to represent you. Filing for bankruptcy isn’t easy, but it might just be the tool you need to find your financial freedom.


Do you need to file for bankruptcy and are worried about a tax lien? Contact the Brownsville bankruptcy attorneys of the Law Offices of Phillippe and Associates to learn how we can help you.

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