Is There Any Equity in My House?
EXAMPLE: A tax lien of $100,000 was recorded by the IRS. John and Jane own a home valued at $500,000 with a mortgage of $600,000. Their home has no equity and the IRS lien is fully UNSECURED. The tax lien will not pass through the bankruptcy and the tax will be discharged. Hooray for John and Jane!
EXAMPLE: A tax lien of $100,000 was recorded by the IRS. John and Jane own a home valued at $500,000 with a mortgage of $440,000. Their home has $60,000 ($500,000 less $440,000) in equity. The IRS lien is SECURED in the amount of $60,000 and UNSECURED for the remainder of the tax. Therefore, a tax lien for $60,000 will survive the bankruptcy and the remainder of the tax ($40,000) will be discharged.
EXAMPLE: A tax lien of $100,000 was recorded by the IRS. John and Jane own a home valued at $500,000 with a mortgage of $300,000. Their home has $200,000 in equity. The IRS lien is FULLY SECURED in the amount of $100,000. Therefore, a tax lien for $10,000 will survive the bankruptcy and the IRS lien rights will not be affected (although the IRS will not be able to collect from you directly.
Now that you've the basic facts about tax liens and how they affect your home in bankruptcy, what should you do now? If possible, you should figure out if there are less drastic ways of dealing with your tax debt. Bankruptcy is a very powerful tool and should be used only if absolutely necessary. Next, you should look at your non-tax related debt. Sometimes, your overall financial situation is sufficiently poor (lots of debts, lawsuits, little chance of repayment) that a bankruptcy that hits "two birds with one stone" (tax and other debt) makes sense.
If both tax and other debt are large and will be eliminated in bankrupcy without a loss of your home, the decision to file may be the only sensible thing to do.
Do you have questions about this topic? Email or call me for a free consultation and we can discuss your situation. (760) 990-1632