Minnesota Bankruptcy Lawyers at Walker & Walker
A tax lien is the government’s claim to all or part of your assets because of a failure to pay taxes on time. A lien may be at the Local, State, or Federal level. Failure to pay a tax lien means that if you sell anything valuable, then the money from selling is supposed to go to the IRS or the Minnesota Department of Revenue instead of to you. Title companies and mortgage companies will pay off tax liens just like mortgages when you sell a house, so it’s best to do something about a tax lien before selling.
Does bankruptcy help with a tax lien? Bankruptcy helps a little bit, but does not completely fix a tax lien. The most useful thing that bankruptcy does, is it makes sure that the tax lien doesn’t attach to any new property you get, assuming the taxes got discharged in bankruptcy. Read this article to learn when taxes get discharged in bankruptcy.
Local Tax Lien
What is a local tax lien? The failure to pay anything billed by the city, municipality, or county can result in a local tax lien. Some examples are billings for water, sewer or garbage. The service would be disconnected or discontinued, but also the bill remains.
Each municipality has its own rules and proceedings concerning unpaid bills. Another form of a local tax lien would be unpaid city tax or special fees. The city tax or fee would after a period of time become a tax lien. The period of time is up to the policy of the city government.
Property tax is another example of a local (usually county) tax lien. When property taxes go unpaid, the county will put a lien on the property. This lien will not allow the property to be sold without the property tax being paid.
Each county has their own method of deciding when to force payment by selling the tax lien at their office or public auction.
When a tax lien is sold the original tax debtor can still pay the debt, but will also have to pay additional fees or premiums that are added onto the lien.
If it is not paid within a time which is designated, the person who purchased the lien has the right to foreclose on the property.
This varies in some states, but Minnesota gives the purchaser of the tax lien a tax deed with the right to foreclose, within the pre-set timeline and guidelines.
- Note that another type of local lien is a mechanics lien. A mechanics lien can be placed on your real estate when you have had work done but did not pay the contractor. The amount owed will be placed as a lien on the property. Again it has to be paid before the property is sold.
State Tax Lien
What is a state tax lien? State tax liens may be in the form of unpaid state income tax, business taxes, sales tax or yearly tax on motor vehicles, and excise taxes created by businesses. The lien is placed on either the real estate property or any personal property the delinquent payee may have.
The state has a statute of limitations. According to the Minnesota Department of Revenue website, the lien must be filed within 5 years of the date of occurrence. After that, they have 10 years to collect. A renewal of the lien may be filed, but it must be done before the 10-year date.
Federal Tax Lien
A federal tax lien is most often from federal income tax not being paid. The IRS will send notices and allow you to set up a payment plan.
But if you fail to set up a plan or pay the lump sum due, they will execute a tax lien. This lien will not be only on real estate but will be on any of your personal property. A federal tax lien can also be on gift tax, inheritance tax, or estate taxes.
How can bankruptcy help?
If the lien was filed before bankruptcy it is considered a secured debt. In Chapter 13 bankruptcy it will be included in the repayment plan. It only gets repaid if you have valuable assets for it. For example, if you have a $50,000 tax lien, but only have $10,000 in property, then it only gets paid $10,000 with some interest in a Chapter 13. This means that in Minneapolis or Saint Paul, you can often save lots of money on resolving a tax lien by filing bankruptcy on it.
In Chapter 7 bankruptcy it will be listed and included as a secured debt. If the taxes were older and got discharged, then it will not attache to any new property you get after filing the chapter 7. If the taxes were newer and didn’t get discharged, then the tax lien will attach to new property you get after the chapter 7 up until the tax lien expires.
Sometimes, if the taxes with the lien are not too high, and the person who filed bankruptcy, then the Minnesota or Federal taxing authorities (which have an office in Brooklyn Center) will forgive the lien. I have had many peopel who filed bankruptcy with a tax lien get a lien release after bankruptcy.
However, with any rule there are exceptions. The experienced Minnesota bankruptcy attorneys at Walker and Walker Law Offices can go over your situation and determine how the tax lien will be handled. Don’t try to figure it out on your own. Contact us to work out your solution.
At our offices, you’ll find we are knowledgeable, skilled and committed to doing what is right for your specific circumstances. Contact us today and let us help you get a fresh start, stop creditor calls, and reverse wage garnishments.