1. Avoidance of Liens Securing Penalties: The trustee may avoid a lien securing the type of claim described in Bankruptcy Code section 726(4) for a fine, penalty, or forfeiture, or for punitive, multiple, or exemplary damages that do not constitute compensation for actual pecuniary loss. [B.C. §72l(a)] note: The priority claimants entitled to distribution under section 724(b)(2) do not include seventh priority unsecured tax claims [B.C. §507(a)(7)]

(iii)  to the extent that the allowed secured tax claim is greater than the total of all distributions made under section 724(b)(2) to priority claimants [B.C. §724(b)(3)];

(iv) To any lien holder possessing an allowed claim secured by a non-avoidable lien on the collateral that is junior to the tax lien [B.C. §724(b)(4)];

(v) To the tax lien holder to the extent that the allowed secured tax claim is not satisfied under section 724(b)(3) [B.C. §724(b)(5)]; and

 (vi) To the Chapter 7 estate [B.C. §724(b)(6)]. [B.C. §724(b)] .

. Example: Debtor Corporation files a voluntary Chapter 7 petition, and the only property available for distribution is a building that is worth $20,000. The Internal Revenue Service holds an allowed claim for $7,000, secured by a perfected tax lien on the building. Bank A holds a $10,000 claim secured by a non-avoidable lien on the building that is senior to the tax lien. Bank B holds a $2,000 claim secured by a non-avoidable lien on the building that is junior to the tax lien. Administrative expenses in the case total $4,000, and there also are priority claims in the amount of $1,000 for pre-petition wages owed to employees of Debtor Corporation. If the building is sold for a price of $20,000, distribution in the case will be as follows: (i) to Bank A in the amount of $10,000; (ii) to the priority claimants for the expenses of administration ($4,000) and for the employees' wages ($1,000); (iii) to the IRS in the amount of $2,000, which is the extent that its allowed secured tax claim ($7,000) exceeds the total payments to the priority claimants ($5,000); (iv) to Bank B in the amount of $2,000; and (v) to the IRS in the amount of $ 1,000, which arc the only funds remaining. Thus, as a result of the subordination of its lax lien in the Chapter 7 case, the IRS receives a total distribution of only $3,000 on its allowed secured claim. [B.C. §724(h)]

Multiple Claimants: Payment to more than one claimant within any particular level of distribution under section 724(b) (above) is made in the order that would have been required under the Code outside of the provisions for the treatment of lax liens. [B.C. §724(c)]

4. Similar Statutory Liens: Any statutory lien whose priority is determined by the same method as that prescribed under 26 U.S.C. section 6323 for the priority of a tax lien is treated, under Bankruptcy Code exactly like a tax lien, and is subordinated accordingly. [B.C. §724(d)]