Bankruptcy

There are individuals out there that think they can get rid of their debts by filing bankruptcy. FYI: Bankruptcy just delays the inevitable. It can either discharge or reorganize debts. When dealing with the IRS, if one files bankruptcy, it just puts a hold on collections and extends the statute through the time of bankruptcy plus six months.

There are three "chapters" that cover the issue of bankruptcy...
~Chapter 7: Liquidation
-This chapter is basically "a fresh start" for the client and taxes can possibly be discharged. It can dissolve non-exempt assets and pay off all creditors to the greatest extent possible. You can lose almost everything because you are liquidizing your assets, or quickly turning your assets into cash to cover your liability. For example, your primary residence can't exceed $15,000 in value, or your vehicle can't exceed $2,400 in value; each state can have different rules.
~Chapter 11: Reorganization
-This chapter is a plan of reorganizing your assets to pay your debts. This plan of reorganization needs to be approved by all creditors, BUT, if in court, the plan can be forced upon the creditors.
~Chapter 13: Regular Income Earner-Reorganization
-Here, a trustee comes up with a streamline payment (liability is less than $25k) to all creditors. Also, there is a mandatory 180 days of credit counseling if this chapter is chosen.

With regards to tax liens, if the IRS files a lien prior to bankruptcy, the lien services through bankruptcy and attaches to the client's property. If there's no equity in a client's assets, the IRS usually removes the lien after discharge. In addition, during bankruptcy, the IRS is voided from filing liens.