As part of the 2005 amendments to the Bankruptcy Code, Congress essentially eliminated a Trustee’s ability to subordinate tax liens in a Chapter 7 filing. See 11 USC 724(b). Although fortunate for holders of secured tax claims, remaining secured creditors are now almost always forced to take a back seat to perfected tax liens.

There are limited exceptions to the general rule. Properly perfected and unavoidable ad valorem tax liens remain subject to subordination for the benefit of claims for wages, salaries, and commissions and claims for contributions to qualified employee benefit plans. 11 USC 507 . However, a trustee must exhaust all unencumbered assets of the Estate and recover necessary costs and expenses before the trustee can subordinate a tax Lien. In practicality, this requirement essentially eliminates a trustee’s ability to subordinate secured real and personal property tax liens. In the end, this may benefit debtors because it limits a trustee’s ability to subordinate nondischargeable tax debt, to otherwise dischargeable secured debt.