Nov 242014

Discharging a Deed of Trust in bankruptcy!

Paul AllenA second or third mortgage can be stripped off the title of your home, and discharged as unsecured debt in a chapter 13 bankruptcy. Imagine, your house is worth less than you owe, and now you can strip part of what you owe and still keep the property. Yes, it’s true. Liens can be stripped off of the debtor’s assets in Chapter 13 when the property is upside down, and the fair market value does not cover secondary liens.

Section 506 of the Bankruptcy Code acknowledges that a lien is only a secured claim to the extent there is value in the asset to which it attaches.  To the extent that the claim exceeds the value of the collateral, that portion of the claim is unsecured. This is really great news. We are stripping liens every day, and returning property value to our clients.

Liens secured by vehicles:

The most common application of lien stripping is the reduction of car loan liens to the present value of the car.  Thus a lender holding a $12,000 claim secured by a car now worth $10,000 has a secured claim of $10,000 and a unsecured claim for $2,000.  Two thousand dollars of the lien may be stripped off the asset (the car) in a reorganization.  The plan must provide for payment in full of the secured portion of the debt;  the unsecured portion can be paid little or nothing along with other unsecured claims.

Recent changes to the bankruptcy law attempt to limit lien stripping on vehicles purchased within 910 days of the filing. The amendment says that “ §506 does not apply” to such vehicles. It is unclear just how courts will apply this. Some courts are publishing model Chapter 13 plans that allow the debtor to propose a strip down of cars regardless.

Tax liens:

Tax liens can be stripped off in reorganization proceedings (Chapter 13)  to the extent that the lien does not attach to equity in property.  Tax liens can’t be avoided in Chapter 7 on the grounds that they impair exemptions; if the tax is dischargeable in the Chapter 7, the bankruptcy court can determine the amount of the lien that is secured at the time of the filing. Payment of that sum entitles the debtor to the release of the lien.

Tax Lien & Levy Releases

We have successfully negotiated the release or modification of wage and bank levies by the Internal Revenue Service and State tax agencies like the California Franchise Tax Board (FTB) for many of our Clients. We have also been successful at convincing the Internal Revenue Service and State tax agencies to remove erroneous tax liens filed against our Clients which was preventing them from buying or refinancing a residence.

Federal and State tax laws generally allow the government to involuntarily collect from you taxes, penalties, and interest they claim you owe without a Court order or judgment. Although the primary method of collection is placing a tax levy on the wages and bank accounts of a taxpayer, occasionally they will also seize an automobile, retirement account or real property.

Wage levies, particularly those imposed by the Internal Revenue Service can be financially devastating as they force the employer to turn over most of the wages of the employee to the Internal Revenue Service. In most cases, the issuance of a tax levy can be often avoided if the Internal Revenue Service or State tax agency can be contacted in time. Although the case is generally made more difficult once a levy is in place, it is still possible to negotiate a levy release or modification.

Tax liens appear on the credit report of the taxpayer and are generally filed in various counties in order to secure the claim of the government against any property owned by the taxpayer. Tax liens are particularly problematic if you own any real property including your residence or you are trying to obtain any type of loan.

While tax collection laws do give the government broad powers, taxpayers have been given a number of rights, including the right to a Court hearing if it is believed that the collection action being taken by the Internal Revenue Service is illegal or unfair. However, the right to a hearing is subject to very strict time and procedural constraints.

If you have received a notice that your wages or bank accounts have or will be subject to levy by the Internal Revenue Service or State tax agency like the California Franchise Tax Board, you probably need professional help.

If you owe income taxes, get to know your options. Will a bankruptcy solve the problem, or should you consider an offer in compromise, which is a form of debt settlement with the IRS. There are other options too. To find out what is best for you, call our office for a free consultation. It takes an experienced attorney intimately familiar and experienced with both discharging income taxes in bankruptcy and non-bankruptcy alternatives to determine the best strategy to use. Filing for Bankruptcy even one day too early can render a tax debt non-dischargeable. This means that you will still be stuck with having to pay the taxes after your bankruptcy is complete.

Avoid problems, call and schedule a free consultation with the Law Offices of Paul M. Allen. We have two convenient offices to serve you. Glendale and La Palma.

Call today, let attorney Paul Allen help you solve those problems and get the fresh start you deserve. Call us now at 818-552-4500.

(This article is for information purposes only, and does not necessary reflect the company’s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)

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