Tax and Bankruptcy?

Question

My father is going to file bankruptcy for tax reasons however there is an 80,000.00 lien. I know it survives the bankruptcy, but I want to know when my father dies then what happens to my mother? Will the IRS force sale of the house since they have the lien. Or does she still have a claim to the house? She is on title if that helps.

Answer 1

Most taxes cannot be discharged through bankruptcy. The tax bill and the lien will survive the BK proceedings.

The IRS seldom forecloses on a tax lien unless they feel that you may try to abscond with the funds. As soon as the property is sold, the IRS will be paid from the proceeds. If there is any debt remaining, your father or his estate will be liable for it. If the proceeds are sufficient to clear the debt, your parents (or the estate) will get whatever the balance is at closing.

Homestead exemptions do NOT protect you against unpaid taxes! They shield you from tort claims but taxes and unpaid mortgages secured by the property will trump a homestead exemption every time.

Your mother might be able to protect her share of any equity if she qualifies as an Innocent Spouse. Google that on the IRS website for more information.

Answer 2

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RE Tax and Bankruptcy?

My father is going to file bankruptcy for tax reasons however there is an 80,000.00 lien. I know it survives the bankruptcy, but I want to know when my father dies then what happens to my mother? Will the IRS force sale of the house since they have the lien. Or does she still have a claim to the house? She is on title if that helps.

Answer 3

To a great extent this is based on the type bankruptcy he's filing and the exemption allowed varies from state to state. It doesn't appear a tax lien will go anywhere but the "shelter" varies.

Answer 4

Each person is allowed to have an exemption in property.. the so-called homestead rule. The amount that can be sheltered in a homestead varies by state.

In CA, for example, you can keep $125,000 of equity. So, if you had a fully-paid house, fairly valued at a half-million dollars, and an enormous tax bill, you could be forced to take a home-equity loan of up to $375,000 to pay your tax bill.

TX and FL have no limit as to the homestead exemption.

Answer 5

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