Secured claims are defined as those claims secured by a lien on the debtor’s property. The claim can only be secured “to the extent of the value of the property securing the claim. For example, a claim for $40,000 secured by a piece of property worth $10,000 would be a secured claim of $10,000 and either a priority tax claim or a general unsecured claim of $30,000” (Armknecht). When it is discovered that a creditor has a lien on a property that also has a superior lien “in excess of the value of the property, [then] the claim is not secured” (Armknecht). In essence, a preexisting lien determines the priorities of other creditors. The presence of a tax lien will determine whether the lien is a priority tax claim or a general unsecured claim. The amount of the lien is dependent upon the value of the property. “If the amount of the superior lien is less than the value of the property upon which the IRS filed its lien, then the IRS will have a secured claim to the extent of that the value of the property exceeds the value of the superior lien” (Armknecht). The remaining balance of the tax claim is still subject to the provisions that govern priority of claims under section 507 of the U.S. code.
Administrative tax claims are specific to those taxes that accrue during the process and pendency of bankruptcy. There are two exceptions to taxes incurred by the estate accorded administrative status. The first types of taxes are those that “constitute priority tax claims. The second are those tax claims that are attributable to an excessive allowance of a tentative carry-back adjustment that the estate received . . .” (Armknecht). The provisions of administrative tax claims are governed by 11 U.S.C. 503(b)(1), which “further accords administrative tax claim status to any fine, penalty, or reduction in credit relating to an administrative tax” (Armknecht). The interest on administrative tax claims may also be accorded administrative status as defined by courts. Tax that accrues during the bankruptcy proceeding will receive a first priority claim.
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Last updated: March 25, 2023
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