Tax Liens and retirement plans

Tax liens and retirement plans

Most pension plans and retirement savings are exempt from the claims of creditors, except for Uncle Sam! Tax liens do attach to IRA's, 401 K's, and pension plans, and, liens generally pass through bankruptcy unaffected.

Thus, while a bankruptcy may discharge your personal liability and protect assets that you acquire after the bankruptcy, any prepetition tax lien survives as a charge on assets owned at the time of the filing. These tax liens, if not released, can cause a huge upset in your retirement budget if the IRS tries to enforce the lien when the retirement plan is in pay status.

When considering whether to seek a formal release of a tax lien for which the personal liability has been discharged in bankruptcy, consider whether you have any form of retirement savings that might be subject to that lien if not released.

Our experience has been that the IRS does not have a system in place to distinguish bankruptcy cases where it might have a valid tax lien on a non obvious asset, like a 401K, and at present does not appear to be routinely monitoring or renewing these liens after a bankruptcy discharge. But this could change.

If this fact pattern describes your situation, get experienced bankruptcy counsel.