Tax Liens

How Did a Tax Lien Get On My Credit Report?

Are you carrying unpaid tax liens on your credit report? If you are one of the millions of homeowners struggling to make payments on utilities, food, and housing you may not have paid your taxes. Tax liens are on the rise and here’s what you need to know about them. A lien is usually filed because the homeowner did not pay his property taxes. By filing a tax lien and selling the lien to an investor the county is able to recoup their property tax loss. Tax liens are placed on properties as a way of ensuring that the property cannot be sold without the past due taxes first being paid, either by the buyer or by the seller. These liens are a way to get property owners to pay the past due taxes.

What Uncle Sam Says

The IRS website explains “Liens give us a legal claim to your property as security or payment for your tax debt. A Notice of Federal Tax Lien may be filed only after we assess the tax liability, we send you a Notice and Demand for Payment with a bill that tells you how much you owe in taxes, and you neglect or refuse to fully pay the debt within 10 days after we notify you about it.”

Tax Liens Drag Your Credit Score Down

If a tax lien is filed against you it can have a dramatic effect on your credit score. It will influence your credit rating the same way any other type of default or past due unpaid bill does, but usually for a longer period of time. It appears as a negative item on your credit report and lowers your overall credit score. A tax lien is also a public notification that the IRS has a claim to your property.

More From Your Friends at the IRS

The IRS explains it as, “By filing notice of this lien, your creditors are publicly notified that we have a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate. The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business).”

Not to Be Taken Lightly

Tax liens are considered very serious business. They are particularly damaging as they can stay on your credit report for ten years. Even after the lien is paid, the record of it stays on your credit reports for 7 years from the payment date. The IRS website cautions, “Once a lien is filed, your credit rating may be harmed. You may not be able to get a loan to buy a house or a car, get a new credit card, or sign a lease. Therefore it is important that you work to resolve your tax liability as quickly as possible, before lien filing becomes necessary.”

Tax Liens Can Be Bankruptcy Proof

You might think bankruptcy is the answer to wiping away your tax debt. But, tax liens usually do not qualify to be removed through bankruptcy. Filing bankruptcy will stop the IRS from filing a tax lien or using collection actions against you, but the penalties and interest are still adding up, making your tax debt higher.  After bankruptcy, you may still owe the IRS, and it could be a larger sum.

When to Take Action

The best time to act is before the lien is filed. If you know you are not going to be able to pay your taxes try to make other arrangements. Once a tax lien is filed there’s no getting rid of it until the debt is paid in full. If you can’t pay in full, see if there are any other options that might be available to you. It’s difficult to work with the IRS authorities to resolve your tax debt. You may feel like you are in over your head. If you cannot afford to pay your taxes and are facing the prospect of tax liens on your credit report, you need to take action. If you don’t know what to do find professional help.

Exactly How Did a Tax Lien Actually Show Up on My Credit Report?

It may not make sense to show unpaid taxes on your credit report, but taxes can be compared to an unpaid debt even though you can’t choose whether or not you are going to incur taxes, unlike normal purchases. For a federal tax lien, the process gets started when the IRS sends a written notice and demand letter to the person that owes the taxes.If the person fails to respond or pay the tax debt, the tax lien gets filed automatically. The filing date of the lien shows up as the date the demand letter was sent because the lax lien is applied retroactively after the 10 day grace period. It also means that the courts will report the filing to the credit bureau and that is how a tax lien shows on your credit report.

Tax Liens “Run with the Land”

“Run with the Land” is a phrase that means that the tax lien stays tied to the property. In cases where the tax lien came as a result of unpaid taxes on property this would apply.

Tax Liens and an “Offer in Compromise”

Just like other creditors, there is a chance that a tax lien holder will settle for a lesser amount than what you owe. Even if it is the federal government, you can try working with them to lower your federal tax liability because in this economy everyone knows that a partial payment is better than nothing. Removing a tax lien on your own might be possible and you can post questions for more information on our credit repair forum. For some people it might be good enough to know that it is possible to have it removed and turn it over to a credit repair company to do it for them. Paid tax liens remain on your credit reports for 7 years from they date they’re satisfied, not filed. If they remain unpaid they can stay on your credit report for 15 years from the filing date.

Tax Liens Will Hurt Your Credit Score

Like a lot of people, I have experienced some rough financial times that left its mark on my credit report. I guess unemployment is just par for the course right now, but when I went without work after my employer laid me off, I felt like I was a second-class citizen. My financial obligations piled up and I couldn’t even make the minimum monthly payments on my credit cards. I had some federal tax liens filed against me and even a state tax lien. Eventually, all of my credit card accounts were charged-off and sent to collection agencies. I became an expert in the abusive collection practices that a lot of collection agencies use. I later learned that some of the steps the collection agencies were taking were illegal, but I didn’t know my rights at the time. I was afraid to pick up the phone if I didn’t recognize the number. When I think back to that time, it is just a haze of calls from collections agencies. Finally, I sought relief through bankruptcy. The bankruptcy removed many of my financial obligations, but my credit score was in the toilet.

How I Got A Tax Lien Removed

I was denied for every loan you could think of. With a bankruptcy on my credit report, the only thing I could qualify for was a dealer financed auto loan but the rate was ridiculously high. I didn’t even try to get a loan because I just felt like people were judging me and with my low credit score, I was just wasting my time. I completely ruled out any hope of home ownership, buying a new car (or even a used car) unless I could do it in cash – all because I had a short amount of time in my past where I didn’t have a job. Even making good money with a solid job history, the banks turned me away and wouldn’t approve a loan of any amount. So, I started asking around and a friend told me about a credit repair law firm that specialized in helping people like me.

Lexington Law Changed My Life

I called the 1-800 number at the site (800-220-0084) and spoke to a paralegal at Lexington Law. She was very professional and even pulled my credit report on the phone so she knew exactly what I was facing and how to best help me. She told me they had removed over one million negative items for clients in 2010 including bankruptcies so for me it was a no-brainer. I’m glad I signed up with Lexington Law. In less than a month, I started receiving responses from the credit bureaus and creditors stating that negative accounts had been reviewed on my credit reports and that they were going to remove some from my credit reports! (See below).

Tax Liens Deleted from My Credit Report:

My credit scores have dramatically improved since there are no longer any negative accounts on my credit report. Here is a snap shot of my credit scores since I signed up with Lexington Law:

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