IRS Tax Lien Secured by All Debtor’s Property

Posted by NCBRC - March 25, 2015

An IRS tax lien attaches to all of debtor’s property, both personal and real, therefore, so long as there is some equity to which it can attach it may not be stripped off. In re Blackburn, No. 12-31658 (Bankr. N.D. Fla. Feb. 3, 2015).

At the time the debtor filed for chapter 7 bankruptcy, his residence was over-encumbered by a first mortgage with a secondary IRS tax lien. Arguing that the tax lien was wholly unsecured, tThe debtor sought to strip it off pursuant to the Eleventh Circuit reasoning in McNeal v. GMAC Mortgage, LLC, 735 F.3d 1263, 1264 (11th Cir. 1989), and In re Folendore, 862 F.2d 1537, 1538 (11th Cir. 1989). Those cases bucked the trend to find that Dewsnup v. Timm, 502 U.S. 410 (1992), does not preclude strip-off of a wholly unsecured lien in chapter 7. [Challenges to McNeal are currently pending before the Supreme Court in Bank of America v. Toledo-Cardona, No. 14-163, Bank of America v. Caulkett, No. 13-1421 (NACBA filed an amicus brief in those cases), and Bank of America v. Bello, No. 14-235].

The court disagreed. The nature of an IRS tax lien, though listed on the encumbrances for the debtor’s real property, is not limited to satisfaction through any particular property. Rather, 26 U.S.C. § 6321 provides that a lien based on delinquent federal taxes “shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to [the delinquent taxpayer].” In this case, the debtor had equity in personal property. Therefore, even granting that the lien on the debtor’s real property was wholly unsecured by virtue of the first mortgage (a fact not conceded by the IRS), the IRS’s lien was still at least partially secured by the debtor’s remaining property. As a partially secured lien it could not be stripped.

Blackburn bky opinion


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