Does Money Owed to a Landlord Come Before an IRS Lien?

Generally, from a legal standpoint, you would not pay money owed to a landlord before an IRS lien. The IRS has the power to potentially seize any and all property to collect monies owed. If you do not have enough money to pay your bills and decide to file for personal bankruptcy protection, you may be able to temporarily avoid paying back rent or back taxes owed.

Federal Tax Liens

A federal tax lien is the legal instrument securing the government's claim to your assets for back taxes owed. Once the IRS files notice of the lien, your creditors will be publicly notified of the government's claim against all your assets, including those acquired after the lien is filed. Generally, the IRS lien becomes the senior (leading) claim against your assets in the event of personal bankruptcy or foreclosure, second only to the first mortgage holder if you are a homeowner. In the case of money owed to a landlord, the IRS lien takes precedence.

Personal Bankruptcy

One of the few debts that typically cannot be discharged in a Chapter 7 personal bankruptcy is back taxes. If you owe money to the IRS and it files a federal tax lien against you, the lien attaches to all of your assets of value (car, house, jewelry), as well as your rights to certain assets (accounts receivable if you are a business owner). As a renter who does not own any real property, you may not have any assets of sufficient value for the IRS to pursue, but if you try to buy a house down the road, it is likely the IRS lien will still be found on your credit report and may hurt your chances of qualifying for a home loan.

Evictions

Once you file for bankruptcy, an automatic stay goes into effect, which prevents your creditors from any further collection actions. The automatic stay may also prevent you from being evicted from your rental home, if the landlord has not yet gone to court to obtain an order of eviction against you. If the landlord already filed an order of eviction prior to your bankruptcy filing, the eviction cannot be stopped. There are two exceptions that may enforce the automatic stay: you pay the rent that would be due during the 30-day period after you file for bankruptcy; or you pay all back rent due, prior to filing for bankruptcy.

Special Preference

Generally, the IRS, state and local taxing authorities get the benefit of an automatic lien for any past due and unpaid taxes you may owe. It is typical for these taxing authorities to get preferential treatment. They may even be paid out of your savings, 401k or other assets ordinary creditors cannot reach. As previously stated, you may be able to have tax debt discharged, or eliminated, under Chapter 7 bankruptcy if you have no assets, but under Chapter 13, your tax debt is included in your repayment plan. Unsecured debts, such as money owed to a landlord, get paid last, if at all.