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Can You Remove A Tax Lien In A Chapter 13 Bankruptcy: YES YOU CAN

Many people think that a tax lien is a permanent matter and can never be removed or even dealt with. So what do people do? They avoid the issue and find a way to work around the lien so that they can continue to live. I am writing this blog so that you avoiders trying to find a way around your tax liens can understand what a tax lien really means and what you can do about it so you need not be an avoider.

Let us start by understanding what a tax lien really means. I am going to use the IRS lien definition because state governments use the IRS a guide to liens and the law to enforce liens. The IRS defines a lien as Sec. 6321. LIEN FOR TAXES:

“If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belong to such person.”

What does this mean? It means that if you fall behind on your taxes and avoid the issue, the IRS will place a lien on everything you own. You might say, “I only have my personal goods and my car and no house.” The problem with that way of thinking is that they still have the liens against your personal property and any future property you buy. What I mean is that everything you own—books, ipad, clothes, computer, food and etc. You get the point.

Tax liens are serious business. Do not ignore the reality you are in. The problem with Tax Liens is that they are good for 10 years and the IRS/State can renew them for another 10 years. The IRS/State will renew them if they have not heard from you or if the options to remove the liens are not taken.

The options to remove a Tax Lien are several folds. You can pay the taxes owed in full and the IRS/State will gladly remove the liens. IRS Suggestions On Resolving Tax Liens. Of course, they will. You can look at the link noted and see how the IRS is suggesting that assets be sold and how they can help you do so in order to get the tax debt paid and lien removed.

You see, the IRS/State want paid and will take your assets to do so. How can this be and how can you stop it? The first step is not ignoring the reality you are in. A Tax Lien destroys your credit even if you find a way to work around it and continue to live. You say “I can deal with the way I am living.” The problem is that the IRS/State will catch up with you and will force you to sell property or even worst you will never own property in your lifetime. You have to ask yourself is living a life working around bad credit so to avoid dealing with your reality worth it?

How you can stop a Tax Lien and live a life of Financial Health is simple but you need to seriously consider filing a Chapter 13 bankruptcy case. In a Chapter 13 bankruptcy case, Tax Liens can be stripped from both personal and real property. BANKRUPTCY STRIPPING CODE. Pursuant to section 506 of the Bankruptcy code, Tax Liens can be removed from personal property and real property in a Chapter 13 case. Once the lien is removed from your property, often the taxes owed are fully unsecured and dischargeable without the need to make one payment towards them but for the unsecured portion you agreed to through your plan. What is the unsecured portion? It is a percentage of the total unsecured debt you owe that you can afford. Such as 10% owed on a total debt of $40,000.00. The amount to be paid would be $4000.00 over 60 months for a total monthly payment of $67.00 a month. At the end of 60 months, your entire tax debt would be discharged and you can live a life debt free and Tax Lien free.

Another way of dealing with tax liens is an offer in compromise. An offer in compromise may lead to the removal of a Tax Lien. Why I say “maybe” is because an offer in compromise is not regulated by a court order like in a Chapter 13 case. Offer in compromises are usually resolved within a department and are subject to that departments decision on how to deal with the liens and your payment arrangement in order to get the liens removed. Remember the IRS/State’s goal is to be paid; therefore, the option is a good one to consider but is less absolute for it is not govern by law and court order.

If you have a Tax Lien, it is a permanent thing if you do not take up one of your options to deal with it. A Chapter 13 case is the best way to deal with a Tax Lien for it strips the Tax Lien from your property and allows to save your property and debt with your Tax Lien and debt once and for all. As always, you should seek professional help for your particular circumstances.

The Horror of HAMP Is Upon Us

My father always said, “Uncontrolled pleasure always comes with a price.”  He was talking about drinking too much in college and getting a hangover but this learning lesson is best way of explaining why we are facing the horror of HAMP which is going to hurt like a hangover.  I know many people hearing the title of this blog would disagree because they are in their homes due to a HAMP modification.  However, I would say to those people do you really know what a mortgage modification with HAMP means?

Most people were so happy to actually get a modification that they did not stop and think what actually is this modification that I am getting?  In February 2009, the Home Affordable Modification Program began with the first of the modification being executed in September 2009. These modification were designed to have a five year life span.  The structure designed with a low interest rate for the first year and steady raise in rate over the next five years until full interest rate and terms were resumed.

What does that all mean?  It means that a modification with HAMP is a band aid.  It was great.  If a homeowner simply needed a five year gap of help and can now go back to 2009 and pay the amount of the mortgage payments and interest that were expected by the original terms of the mortgage, including the full amount owed on the mortgage.  However, it means horror for the person who began to live their lives on the new lower payments and now are expected to pay the original terms of the mortgage and still face the reality that their homes are still underwater.

So you see why the horror is upon us.  HAMP modifications were never intended to be a permanent fix for any homeowner but only a temporary fix.  Unfortunately, I do not believe that homeowners who got modifications really understand this fact.  I think homeowners think that the mortgage companies owed them to reduce their interest rate and the amount owed on the mortgages.

I do not disagree with the idea that mortgage companies should be responsible for the loose mortgage practices that produced a shark like effect and cause some good people to get screwed.  However, the good people ultimately gave into their desires and signed the agreements.  The price to pay for the pleasure of having the home that you cannot quite afford was delayed by HAMP but the price is upon you now.

If you still do to want to believe, let me put the horror into more specific terms.  Hope Now, a non-profit organization recommended by HAMP, has noted that they have helped over 6.5 million homeowners with modifications under HAMP.  Hope Now is one of the more successful organizations with modifications but is one of many that helped homeowners under HAMP.  Think about the potential for a horror movie with just 6.5 million people not prepared to tackle their mortgages as they were before or even if they worked out a better terms than the original mortgage the terms, payments are going up.

Further, think about the fact that even if homeowners were able to get new employment, it is likely that the income was much less than what the homeowners were making when they purchase the home.  Additionally, there are other hurtles to consider.  The Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act was not renewed in December 2013.  Also see our Short Sales Are Dead Blog.  What does this all mean?  It means that a homeowner cannot expect to seek forgiveness of mortgage debt not retrieved by a mortgage company in a foreclosure sale or short sale.  As a result, the homeowner will now be 100% liable to pay for any deficiency from either a short sale or foreclosure sale.

The impact is a horror situation for homeowners who could make it through on the modified terms of the HAMP agreement but now cannot make payments.  The options for these homeowners is either let the home go to foreclosure sale or short sale the home for the home is likely to still be underwater.  These options no longer are just one dimensional decisions rather the factor of deficiency amounts must be considered by the homeowner.  The homeowner will now be liable either by being forced to pay the deficiency amount or by being forced to take the deficiency amount as income for that year and face large tax consequences.

HAMP’s intent was good but like my father said a price must be paid in the end.  Politicians are not realizing the overall effect of not renewing the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act and the first homeowners coming out of their modification agreements.  Also, politicians are not looking at the impact that this could have on independent modification agreements by other mortgage companies.  Remember modifications are optional for mortgage companies and there are no specific laws that outline a process that must be followed.

I think you get the full picture of the horror of HAMP which is upon us.  My advice is that if you have a HAMP modification and were actually able to keep your payments up, but are not sure if you are going to be able to make the payments once your HAMP modification expires, you need to get prepared now. You need to seek professional help and determine your options that are still available to you.

Can you Make A Second Mortgage Go Away In A Chapter 7 Bankruptcy?

There have recently been many consumer debt bloggers discussing the possibility that lien strips in their entirety may start to extend to Chapter 7 case, where previously, only those Debtors in a Chapter 13 or 11 reorganization could eliminate an entire second mortgage or home equity loan in a chapter 7 case if no equity existed for the junior lien holder as of the date of the bankruptcy petition filing.

This hope and optimism was generated in great part by the Eleventh Circuit Court of Appeals in a 2012 ruling on this issue where the Court held in McNeal v. GMAC Mortg., L.L.C. (In re McNeal), 477 F. App’x 562, 563 (11th Cir. 2012) that it is in fact allowed to avoid a junior lien in a Chapter 7 bankruptcy, reasoning that the United States Supreme Court did not fully address the issue of completely eliminating a junior lien in their famous Dewsnup, 502 U.S. 410, 413 (1992) holding that a partial avoidance or “cram down” can not be done in a Chapter 7 case.

This optimism may have just been tempered though due to a Bankruptcy holding in New York, on the issue of lien stripping in chapter 7 as a case of first impression. The Court in Ramiz Saric & Sahiza Saric, 2013 WL 6536752 (Bankr. N.D.N.Y. 2013), denied the Debtors’ motion to avoid the junior lien, even though the Debtors demonstrated there no equity as of the petition date in the real estate. The court reasoned that the creditor would still have an “allowed secured claim” as the term is used in section 502(d) because the claim was generally “secured by a lien with recourse to the underlying collateral.”

The real issue with these types of decisions is that without a grand sweeping holding, the issue of whether a junior lien can be stripped in any given court will be on a jurisdiction by jurisdiction basis. In the jurisdictions that our firm practices (1st Circuit and the 4th Circuit) these issues have yet to be challenged. However, in at least one Massachusetts case in the last year, the McNeal holding has been recognized by Judge Hoffman in a Chapter 13 challenge to a Mortgage. Is should be interesting to see how the issues play out over the next year or two as more latch on to the hope of NcNeal and test the waters in their states.