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IRS Tax Problems

Virginia Bankruptcy Attorney | Virginia Bankruptcy Lawyers

Virginia Bankruptcy Attorneys

The average individual debtor faces no tax consequences after receiving a discharge in bankruptcy. The Internal Revenue Code excludes the discharge of debt in bankruptcy from its definition of cancellation of debt income. Outside of bankruptcy, your cancellation of debt may be treated as if it were income for tax purposes. Once you've filed for bankruptcy, the IRS must cease collection actions in regards to those tax periods ending before the order for relief. In post-petition periods the IRS is not stayed from collection.

The automatic stay protects the debtor and the debtor's property. Whether the tax claim will survive the bankruptcy, (that is, whether it is nondischargeable) depends on a variety of factors determined on a case-by-case basis. An experienced Virginia bankruptcy attorney can help you decide whether bankruptcy is right for you.

Tax Liens

Before bankruptcy, you may have had liens against your property because of tax problems. If the discharge in the Chapter 7 case eliminates your personal liability for the tax year or years for which there is a lien, the lien survives only as a charge on the equity in the property that the debtor owned when the case was filed. The lien, though not discharged, does not attach to new assets acquired after filing the case.

After the discharge, you may: 

  • pay the IRS the value of the equity in assets that the lien was attached to at the beginning of the case;
  • do nothing, hoping that collateral is of such little value or exempt from levy so that the IRS will not attempt to enforce the lien;
  • file a Chapter 13 to pay the lien over time with a repayment plan, if the lien attaches to valuable assets.

Most pension plans and retirement savings are exempt from the claims of creditors, except for the IRS. Tax liens do attach to IRA's, 401 K's, and pension plans, and these liens generally pass through bankruptcy unaffected. Thus, while a bankruptcy may discharge your personal liability and protect assets that you acquire after the bankruptcy, any tax lien existing before filing bankruptcy survives as a charge on assets owned at the time of the filing.

These tax liens, if not released, can have a huge effect on your retirement budget if the IRS tries to enforce the lien when the retirement plan is in pay status.

When you consider whether to seek a formal release of a tax lien for which the personal liability has been discharged in bankruptcy, consider whether you have any form of retirement savings that might be affected if the lien is not released. A Virginia bankruptcy attorney from our firm can help you make this determination.

An experienced Virginia bankruptcy attorney at Charles B. Roberts & Associates, P.C. can help you with the complex process of filing a Chapter 7 or Chapter 13 bankruptcy in Virginia. Call 703-491-7070 or 1-888-407-4529  ( toll free) today to discuss your case with a Virginia bankruptcy attorney.

We handle cases in Arlington, Fredericksburg, Woodbridge, and throughout  Northern Virginia.