When the IRS places a tax lien against your property, a bankruptcy may not remove or discharge it. As reported by Credit.com, tax debts have a 10-year statute of limitations from the date of assessment. The IRS may collect the amount that you owe until the SOL expires or you sell your home.
Bankruptcy, however, may offer a “pause” on the 10-year timeframe. After submitting your petition, the court issues an automatic stay. Creditors may no longer pursue you for debt. The IRS may also stop collecting a debt from you until after your bankruptcy case closes.
When may I need to sell my home during bankruptcy?
In some cases, a Chapter 7 bankruptcy may require petitioners to sell their homes. If your property’s equity does not exceed $25,150, you may keep it under Maryland’s homestead exemption statute.
To find your home’s equity value, subtract the amount you owe for its mortgage from its current market value. If your home’s equity exceeds the state’s $25,150 allowance, the bankruptcy court may require you to sell it. Proceeds of a sale first go toward paying off your outstanding tax debts.
How may a property sale result in payment to creditors?
Forbes reports that a federal tax lien acts as a blanket that covers all assets a taxpayer owns. While the IRS may not force you to sell your property, a tax lien confirms the federal government receives payment before other creditors if you do sell your home.
Bankruptcy typically does not eliminate a tax lien, but it could help you restructure your financial priorities. If you qualify for a Chapter 7 bankruptcy, you may keep your home if its equity does not exceed Maryland’s homestead exemption. Selling your home, however, may help you pay off tax debts and remove a lien.