Category: Tax Debt

Tax Debt

IRS Tax Lien & Your Florida Homestead

It is long thought that your Florida Homestead protections under the Florida Constitution render your home untouchable to creditors. This is true for the most part, but there are exceptions, such as IRS tax liens.

The Internal Revenue Service (IRS) is given enhanced creditor powers to collected on amounts owed. These powers allow for the IRS to levy or liens. A levy is a legal seizure of property, such as a garnishment of a paycheck, bank account, seizure of a vehicle, real estate or other personal property.

An IRS tax lien is claiming the secured rights to the collateral. What happens is the IRS will file a Notice of Tax Lien when a tax bill goes unpaid. This gives notice to other creditors of its claim to the property. This IRS tax lien is something that most clients become alarmed about when they go to refinance, sell, or modify the mortgage on their home and find that they are prohibited from doing so because of the lien. There are ways to move forward with the sale/refinance closing, however you will need to provide documentation to the IRS and give some assurance to the IRS that the loan or sale will aide you in paying your outstanding IRS Tax bill.

Difference between a Levy and a IRS Tax Lien

IRS Tax Levy

  • Taking of property
  • No public recording
  • No negative reporting to credit

IRS Tax Lien

  • No taking of property
  • Asserting legal claim/ security interest in property
  • Public Records recording of Notice of Federal Tax Lien
  • Negative reporting on credit report

Will the IRS Sell my Homestead to Satisfy an IRS Tax Lien?

The technical answer is yes. Under IRS section 6334, the IRS can take principal residences to satisfy tax debts over $5,000. The IRS is given super creditor powers to access just about every asset a person owns. I have had clients where their retirement accounts were levied upon (cleaned out) to satisfy a personal income tax debt.  However, the real answer is that the IRS will not likely take anyone’s home when it is so much easier to take bank accounts, garnish wages and access other property. For the IRS to forcibly take a Florida resident’s home, the IRS is required to get approval by a District Court judge or magistrate.

How to Get Rid of an IRS Tax Lien

The easiest solution is to pay it. However, it is understandable that sometimes the balance is too large and it is hard to get on a payment plan with the IRS. A chapter 13 bankruptcy can be a good tool for dealing with IRS issues that arise when a business closes or a change in jobs leaves you with a large tax bill and seemingly no options.

Call (305) 278-0811 to schedule a free consultation with one of the bankruptcy attorneys in our office to find out your options.

Got Debt?

non-dischargeable debts

What is a non-dischargeable debt in bankruptcy?

When I first meet with a potential client, we discuss what debts are non-dischargeable debts under the bankruptcy code and what debts bankruptcy can help with. This is often the part of the consultation where we discuss the reason driving the client to file bankruptcy and the goals of the case. Bankruptcy can help with the client’s debts in most cases, but with certain debts the help is not in the form of a discharge of the obligation entirely.

What debts can bankruptcy help with?

Unsecured debts are debts that do not have collateral to look toward if the clients stops paying on the balance. These debts outside of bankruptcy could confiscate paid off cars, garnish wages, and/or freeze bank accounts for payment through a lawsuit and judgment. Unsecured debts in a chapter 7 bankruptcy often do not receive any payment. In a chapter 13 bankruptcy, this class of creditors often receives pennies on the dollar before the remainder of the obligation is discharged.

Unsecured Debts that can be discharged in bankruptcy:

  • credit cards
  • hospital bills
  • home or investment property foreclosure deficiencies
  • repossession deficiencies
  • business guarantees
  • IRS tax penalties

Secured Debts are obligations where if you stop paying the lender, the creditor/lender can repossess the collateral. The personal obligation can be discharged leaving only the lien for the following Secured Debts:

  • car leases
  • equipment leases
  • car loans
  • promissory note obligations to first mortgagees and/or second mortgagees (lien stays on property) on a property that client decides to surrender
  • HOA obligations on a property that client decides to surrender

What are non-dischargeable debts in bankruptcy?

There are other debts that may be unsecured, but are not dischargeable under the bankruptcy code provision 523.

These debts are examples of debts that cannot be discharged:

  • domestic support obligations (only child support and alimony in chapter 13; any DSO in a chapter 7)
  • IRS tax debt
  • student loans
  • trust account debts-Sales Tax and 941 obligations
  • debts procured from a misrepresentation or fraud

For more questions about your debts and whether bankruptcy can help, call the bankruptcy attorneys at the Bankruptcy Law Offices of James Schwitalla for your free consultation (305) 278-0811!

Tax Debt

Can I Discharge my Income Tax Debt?

Clients with income tax debt often come in for consultations feeling like there is no hope. Their tax debt could be based on 1099’s, penalties on past due tax debt, or a result of a business closing. Many people think you cannot discharge a taxes in bankruptcy because it is a debt owed to s government entity, but the bankruptcy code maps out the requirements for when taxes can be discharged.

If the taxes are not considered priority, then the tax debt can be discharged. For the tax debt to not be considered priority under bankruptcy code section 507(a)(8)(A), the below requirements must be met:

  1. The tax return was last due without penalty more than three years ago;
  2. The return was filed more than two years ago;
  3. The tax was assessed more than eight months ago; and
  4. You did not willfully attempt to evade or defeat the tax.  A recent opinion even held that the failure to file tax returns for years on end showed debtor did not try in good faith to comply with the tax laws and held the taxes non-dischargeable in bankruptcy even though conditions one through three, above, were met!

The most important thing is the returns MUST be filed. Often clients come in with tax debt and the client was too afraid to file the return knowing that tax debt would arise. Without a timely return, we cannot help, so the moral of the story: file your taxes even if you cannot pay them!

If you have tax obligations that you cannot pay, contact our office for analysis of how much of your taxes you have to pay and how much of it you can discharge in bankruptcy. The consultation is free. Contact us today to gain knowledge and information on how to gain back control of your financial life (305) 278-0811.