8.5 Effect on Tax Liens

Discharge of a tax debt in bankruptcy will not extinguish a pre-petition lien.1  It only extinguishes the personal liability. Generally, liens recorded before the bankruptcy will not be canceled.2  If they survive, the IRS will be able to seize the asset subject to the lien. This puts debtors with homes and retirement plans at risk of future tax collection.3  However, the IRS may not bother enforcing liens after a bankruptcy. A tax lien will not attach to property acquired after a bankruptcy if the underlying tax liability was discharged in the bankruptcy.4

• 1In re Orr, 180 F.3d 656 (5th Cir. 1999); In re Isom, 901 F.2d 744 (9th Cir. 1990).
• 2Generally, a lien will be valid until the 10-year statute of limitations has run. I.R.C. §§ 6322, 6502(a).
• 3Generally, the IRS will not seek to levy retirement plans unless there has been “flagrant misconduct” by the debtor. I.R.M. 5.9.17.5.3, .11.6.2.
• 4I.R.M. 5.17.2.5.6.