It’s no secret that if you owe taxes to the IRS and don’t pay them, the Internal Revenue Service will place a federal tax lien on all of your property. This type of lien can exist even if the IRS did not file a notice of federal tax lien with the public record. There have been a few cases where this bond was attached to an individual’s retirement account to pay off that tax debt even after the taxes were settled in the bankruptcy filing.
Generally speaking, filing for bankruptcy can offload some of the taxes. The rule for dischargeable taxes in a bankruptcy filing must be more than three years old and the individual must be current on their tax returns. Bankruptcy filers beware, a properly recorded lien will usually survive a bankruptcy discharge. In fact, this may also include liens that were recorded against the debtor’s property prior to the individual filing for bankruptcy. It is true that the bankruptcy code protects all exempt assets of the bankruptcy estate unless this property is secured by a properly recorded lien. For the property to be considered exempt under the bankruptcy code, it must be part of the bankruptcy estate.
In 1992, the US Supreme Court ruled that assets that were protected by ERISA or the Employment Retirement Security Act are not necessarily part of a bankruptcy and can be excluded from bankruptcy if the debtor so chooses . This law protects the debtor’s pension from being taken in bankruptcy by creditors or the bankruptcy trustee. To protect this asset from an IRS tax lien, the debtor’s retirement must be included in the bankruptcy and then protected by bankruptcy exemption laws.
Section 11 USC 522 of the bankruptcy code allows retirement funds to be exempt and discharged from any tax lien. If everything is included in the bankruptcy filing by the bankruptcy attorney and is clearly and specifically protected by the exemption laws, the IRS will not be able to retain your lien and take funds from the retirement account.
Here are some other reasons to use a bankruptcy attorney when filing for bankruptcy. Sometimes a bankruptcy can be simple, but there are other times when something like this could be overlooked and come back and bite the debtor later. The debtor will not even know what hit him since the money he had for retirement is taken away. Using a bankruptcy attorney for the filing will add the extra assurance that all I’s are dotted and T’s are crossed. The bankruptcy attorney will have the experience to use the exemption laws to maximize the protection of the debtor’s assets. Filing for bankruptcy can be very stressful, but having the peace of mind of having a professional fighting for you in your corner is well worth the money spent.