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Will an Automatic Stay Prevent Tax Liens?

Will an Automatic Stay Prevent Tax Liens?

When someone files for bankruptcy, the courts will issue an automatic stay to prevent creditors from collecting on your debts. Some types of debts will be exempt from an automatic stay, however. So, if you have any concerns over a tax lien, it is possible that the stay may not protect those assets once you file for bankruptcy.

After the process begins, the courts issue the automatic stay, and all creditors are notified. They can no longer contact you or undertake collection activities. This offers protection as well from creditor harassment and potential creditor lawsuits.

When Will an Automatic Stay Not Apply?

The one exception to this is tax liens that have been placed on your property by the IRS or another tax authority, such as a state government agency. The tax authority can use the property to pay down any tax debts that may still be present. For those who might owe property taxes as well, the lien on the property will apply to the taxes.

Automatic stay cannot be used for tax liens under the following conditions:

  • The lien is a property tax lien on taxes that were due after the individual filed for bankruptcy.
  • The tax liens are not eligible for discharge in bankruptcy. The property that is attached to the liens is exempt from the estate, or the trustee returned the property to the debtor.

Only certain types of taxes can be discharged. Many people have the idea that you cannot get rid of tax debts for under Chapter 7 bankruptcy. However, there are some conditions where it can be allowed.

Here are the requirements:

  • The taxes are income-based
  • The tax return must have been filed 2 years prior to filing for bankruptcy
  • The tax authority should have assessed the taxes at least 240 days before you filed for bankruptcy
  • The taxes involved should be from a tax return due at least 3 years before filing for bankruptcy

Because the laws concerning taxes and debts can often be confusing, it may be in your best interests to consult with a tax professional or a seasoned Atlanta bankruptcy lawyer. Khoshnood Law Firm, P.C. can discuss the various legal options with you regarding tax debt and options for relief. We want to help you secure a brighter, more financially secure future.

We offer supportive legal counsel to help you overcome any debt issues you might be faced with. Give us a call and schedule a free, no-risk consultation.