Sam Brotman, JD, LLM, MBA December 16, 2013 5 min read

Discharging Taxes in Bankruptcy - Part Two

avatar

Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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.

Need help? Please contact Brotman Law to learn more about how I can help you. Please contact me directly for more information.

Go to Brotman Tax Resolution Services

Go to The Brotman Virtual Law Office

Go to Resource Blog Homepage

"Sam is a wonderful, results-oriented and extremely knowledgeable and talented attorney, who really has 'heart' in working on behalf of his clients, and explains options in a straightforward, respectful manner. He has assisted us with great outcomes which have added to our quality of life. I would not hesitate to recommend Sam for his services as he is an ethical, personable and expert attorney in his field. You will likely not be disappointed with Sam's work ethic, approach and his efforts."

-Aileen Dwight, Licensed Clinical Social Worker & Psychotherapist

Last updated: March 24, 2024

Receive the Best of
Brotman Law

Get this topic delivered straight to your inbox.

New call-to-action
avatar

Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

COMMENTS

BECOME AN INSIDER

Our best stuff: secrets, tax saving tools, and tax defense strategies from the braintrust at Brotman Law.

  • Expanded benefits during your first consultation with the firm.
  • Priority appointment scheduling and appointment times.
  • Complementary access to our firm’s concierge services.
  • Receive updates and “insider only” tax strategies and tactics.
  • And many more benefits.

Not Sure Where to Start?

Step 1 Start Here

Start Here

These ten big ideas will change the way you think about your taxes and your business.

Start Here

Step 2 Learn About Your Situation

Learn About Your Situation

Find the articles and videos you need to make the right tax decisions in the learning center.

Visit the Learning Center

Step 3 Explore Our Services

Explore Our Services

It is not just about what we do, but who we are, why we do it, and how that benefits you.

View All Services

Step 4 Get Your Game Plan

Get Your Game Plan

Meet with us to outline your strategy. No further obligation, 100% money-back guarantee.

Book an Action Plan