IRS liens on your home and bankruptcy pt II

  • Tim 

The other day I wrote about bankruptcy trustees using the bankruptcy laws to remove IRS liens from penalties. At the time I thought that was a bit aggressive.

Today I read an even more aggressive case.  The debtor owned a house worth about $700,000, they had a first of $560K and IRS liens of about 190K.  In short there was no equity for the bankruptcy trustee to take.  In the previous cases the bankruptcy trustee would have made a motion to avoid the lien that was due to penalties and use that logic to force a sale of the home.

In this case the trustee didn’t even bother with that.  The bankruptcy trustee merely said the tax debt was being contested (who doesn’t say they owe the tax bill the IRS hit them with?) and asked the bankruptcy judge to allow the bankruptcy trustee to sell the property.  Surprisingly the judge allowed the sale to go through.

This is crazy in that bankruptcy trustees are supposed to be freeing up cash for unsecured creditors, not creditors with liens against the property.  If the value of the liens exceed the property the trustee normally ignores the property.

If this trend continues bankruptcy is probably no longer a viable option for people who owe the IRS a lot of money and want to keep their home.