Authored by J. Ellsworth Summers, Jr. and Scott St. Amand of Rogers TowersWhen the time comes to collect a debt, few organizations are as accomplished as the Internal Revenue Service. The IRS showed just such guile in the case of In re Williams, a recent Chapter 7 proceeding in the Middle District of Georgia, in which the creditor raised an interesting, and more importantly, successful defense to a McNeal motion.
As in McNeal, the debtor was upside down on its mortgages, and it moved to strip off a second priority tax lien which was wholly unsecured by the debtor’s residence. In doing so, the debtor made a standard McNeal argument.
Not to be dissuaded by the McNeal motion, the IRS argued that although the tax lien was indeed unsecured with regard to the residence, a tax lien, by statute, attached “to all property and rights to property, whether real or personal, belonging to such [debtor].” Thus, the court held that because the debtor’s personal property retained unencumbered value, a component of the IRS’s lien is partially secured by the debtor’s personal property – even if another component of the lien is wholly unsecured. Because the lien remained partially secured, Dewsnup applied, not McNeal.