All prepetition liens must be satisfied before the trustee gets anything. That makes it more likely that you will choose the federal exemptions, especially considering the current state of the mortgage market, because the trustee would have to sell the house, cover all closing costs and sale expenses, pay off the mortgage, pay off the tax lien, and still have enough money left over for creditors to justify doing all of that. If the tax debt is otherwise dischargeable, and the debtors keep their home, it is still subject to the lien. It’s very much like the retain-and-pay situation where the debtor keeps the car but doesn’t reaffirm on the loan. The underlying in personam debt is discharged, but in rem lien remains intact, which is why the finance company can still repo the car if the payments aren’t made. The lien, once applied, will remain.
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