Provided under 26 U.S.C. § 6334, certain property claimed as exempt on the bankruptcy schedules are exempt from IRS liens. The Bankruptcy Code does not require debtors to include the exempted amount in an IRS allowed secured claim.
Section 522(c) clarifies that certain creditors are free to pursue the property which has been exempted from the property of the estate.
11 U.S.C. § 522(b) provides in pertinent part:
(b) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate the property listed in either paragraph (1) or, in the alternate, paragraph (2) of this subsection.
The exemption allowance is important in assessing an allowed secured claim of the IRS for the purpose of 11 U.S.C. § 1325(a)(5)(B)(ii) which governs payment of allowed secured claims under the Chapter 13 plan. 11 U.S.C. § 506(a) provides in relevant part that:
[a]n allowed claim of a creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property . . . and is an unsecured claim to the extent that the value of such creditor's interest . . . is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest. (Emphasis added.)
At the confirmation hearing, the court determines the creditor's allowed secured claim which must be paid under the plan, and the estate no longer has an interest in the property which has been exempted from it pursuant to section 522(b). Hence, the allowed secured claim of the IRS does not include the exempted amount because the IRS's allowed secured claim cannot exceed the estate's interest in property.
It is important to note the valuation of the secured lien of the IRS claim is not the same as a lien avoidance. Congress has provided that certain tax liens survive outside the bankruptcy realm and these liens not subject to lien avoidance attacks merely because the property has been exempted from the estate. However, for the valuing of an IRS secured claim, the IRS claim cannot secure to the value of the debtor’s exempted property because the estate has no interest in the exempt property.
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The allowed secured claims of the IRS does not include the value of exempt property. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com and let us help you get your life back.