How can bankruptcy impact tax liens and levies?

 Posted on July 23, 2024 in General Bankruptcy Topics

Filing for bankruptcy can be a complicated decision, especially when dealing with tax liens and levies in Maryland. It can be helpful to learn about the impact bankruptcy can have on these financial obligations.

The difference between tax liens and levies

A tax lien is the government's claim on your property for unpaid taxes, ensuring payment if you sell. A tax levy is the government seizing your property or assets to satisfy the tax debt.

How bankruptcy affects tax liens

When you file for bankruptcy, an automatic stay stops most collection activities, including tax liens. Bankruptcy does not eliminate tax liens. If the lien attaches to your property, the IRS still claims it. Chapter 13 bankruptcy allows you to repay your tax debt through a structured plan, potentially removing the lien once you pay the debt.

How bankruptcy affects tax levies

Filing for bankruptcy activates an automatic stay on tax levies, stopping the IRS from seizing your assets. In a Chapter 7 bankruptcy, you might discharge certain taxes if you meet specific criteria. In a Chapter 13 bankruptcy, you can include your tax debt in the repayment plan, which stops further levies.

The importance of timing and type of bankruptcy

The impact of bankruptcy on tax liens and levies depends on the type and timing. Chapter 7 bankruptcy can discharge certain old tax debts, but not recent taxes. Chapter 13 bankruptcy offers more flexibility, allowing you to create a repayment plan for your tax debts, and reducing the pressure from liens and levies.

Navigating bankruptcy and tax issues

Bankruptcy offers temporary relief from tax liens and levies, but knowing the long-term effects is essential. By planning carefully and choosing the right bankruptcy chapter, you can manage tax debts effectively and regain financial stability.