Remove Tax Liens

Tax liens are basically legal claims by the government entity against the assets of a noncompliant tax payer. They are usually the last resort to force a person or business to pay back taxes. These tax liens are imposed by the law as a way to secure payment of taxes. They can be imposed for delinquent taxes owed on personal property, real property or even as a result to pay income taxes and other forms of taxes.

If the taxes remain unpaid, the tax authority is free to use a tax levy in order to legally grab your assets which may include bank accounts, investment accounts, real property, and automobiles among others. These are meant to cover up for the money you owe as tax.

In order to get rid of a tax lien, a taxpayer must pay what he owes, reach an offer in compromise with the tax authorities or even get the debt dismissed in a bankruptcy court.

The problem with tax liens is that they are publicly recorded and so, they may be reported to credit reporting agencies. This automatically lowers your credit score and eventually credit worthiness and you might start facing problems borrowing money. Paid tax liens will remain on your credit report for 7 years starting from the date it was filed. However, those that remain unpaid can stay on your credit report indefinitely.

The danger of having a tax lien

Tax liens on your credit report are just the same as judgments; both are basically a legal remedy for your creditor to collect money from you. You stand to lose a lot with a tax lien, for instance IRS gets the legal right to your property including financial assets and personal property. Other than this, there are other serious problems one can face with a tax lien.

It becomes impossible for one to sell their home with a tax lien. Already, IRS has obtained the legal right to what you owe, therefore you cannot sell it. If you do, part of the money you get from the sale will go to satisfy the lien, which is not agreeable to many.

It also becomes impossible to qualify for new credit. If you have not been paying taxes as per the government requirement, it will become very challenging to convince a loan lender of your willingness to pay back if they loan you money. Once tax liens are filed against you, IRS establishes that it is first in line to collect; therefore creditors automatically know that they will not have much alternative in case you fail to repay back the borrowed money.

The most obvious danger of having a tax lien on your credit report is the significant drop you will experience on your credit score. You can experience a fall of up to 100 points after his and this means that your credit report will not remain where it was. This kind of damage can be a little difficult to undo because these kinds of items can stay in your credit report for close to ten years.

How they affect your credit score

Even though some tax liens eventually get removed from your credit report, those that stay on your report can cause great damage on your on your credit score. This is one of the indications that loan lenders look out for in order to understand the kind of debtor you are. If the government has filed a tax lien against you for not paying your taxes, it portrays you as a risky borrower. Failure to pay taxes gives potential lenders the impression that you might be in financial distress. It might also send a message across to your future employers that you are prone to forgetting or even ignoring payment obligations.

Once the lien gets added to your credit report, your credit score will then be affected. Its weight on your credit score is not easy to establish though as it is considered just like all other items on your financial report. One’s credit score is determined by many factors, therefore the lien may have a major or not major impact on your credit score depending on the kind of financial history you have.

However, it is an item to think about as it is always a derogatory entry, just like a bankruptcy, a collection, a judgment, a charge-off, a repossession among others and its impact can, therefore, be little or so much.

What is the way forward?

The best you can do if you have a tax lien on your credit report is to pay what you owe. Good thing is that the credit reporting agencies update the credit file within a day of being notified. The problem with this is that the lien will not be removed from your credit report for at least 7 years after it has been released. One that has not been paid can stay up to ten years after it was filed.

Tax liens are the same as bankruptcies and foreclosures when it comes to the effects they have on your credit score. It can cause your credit score to plummet within a short period of time. This can take a very long time; say up to ten years to recover fully.

If you are hit with a tax lien, it can help a lot if you start paying your credit cards and loans on time. Keep your balances low as well so as to minimize the amount of damage on your credit score. The best news is that there is a way to get a tax lien removed from your credit report. This is the best way forward as it can reduce the effect of the negative impact that the lien had on your credit score.

How to get a tax lien off your credit report

Even though it is the IRS that files the tax lien that appears on your credit report, they do not report such matter to the credit reporting agencies. Like I mentioned earlier, tax liens are usually made public, just like bankruptcies and judgments. This is where the credit reporting agencies obtain their information. In trying to have the item removed from your credit report, you have to deal with both IRS and credit reporting agencies.

In as much as many people would love to stop the tax lien from appearing on their credit report before it actually happens, you are never informed of the tax lien, at least not until it has already appeared on your credit report. The only notice you receive is from IRS demanding payment from you. If you fail to make payments, that is the time they file a notice of tax lien with the amount you owe. This item will stay on your credit report indefinitely as long as it is unpaid.

Filing for bankruptcy cannot help much when you are in such a situation. The tax lien item on your report will still remain there. If you are lucky to file for bankruptcy before the lien is attached to your report, which is the only time you will avoid having it in your credit report. However, you will have to deal with the effects of bankruptcy on your credit report too; therefore you are not safe either.

The only option you have after all this is to dispute the tax lien. If the government is unable to prove that you owe the debt, you will succeed in having the lien removed from your credit file. If however you owe the government a lot of money, it will not ignore the dispute. IRS can confirm and even update the information and this means that you will still be stuck with the tax lien on your credit report. Paying the debt in full is also not a good idea if you want to get rid of the item from your credit report. After paying in full, IRS releases the lien but that released lien will be reported for about 7 years after the time you made the full payment.

There is a way out though, through which you can remove the lien from your credit report when it has not been paid in full.

1. Complete an IRS form 12277 to request a withdrawal

This is the form that will serve as a request for withdrawal of the original tax lien. The withdrawal is very different from having the tax lien released after you have made complete payments. A withdrawal can be requested even when one is still making payments on the lien. The only thing you will be required to do here is to pay in full. IRS will not agree to withdraw tax liens from your report on settlement offers; the total amount of money owed has to be cleared in full.

The other reason why this is good is because it will help a lot if you need new credit or to sell your home, which is a bit difficult with the tax lien on your credit report.

When completing the form, try to locate the form that was sent by IRS as notification of the original tax lien. This can help speed up the process. You can still send the form without the notification though.

If you convince IRS that withdrawing the tax lien is for the best interest of the tax payer and the government, you might succeed.

2. Send the completed form 12277 to IRS

Find out the regional address where you should email the form and ensure that you use a certified mail for this.

3. Wait for a response

If you are successful in filing for a withdrawal, IRS will act after 30 to 45 days. They will do this by contacting the court where the lien was filed, instructing them to withdraw it. You too will get a copy of this notification from IRS.

4. Contact the reporting agencies to dispute the lien

Contacting IRS alone will not help much because the lien is already listed on your credit report. That is why you need to deal with the reporting agencies as well. When you contact them disputing the tax lien, the three reporting agencies will contact the courthouse where the lien was filed in order to establish whether or not the information you have given them is accurate. Since the courthouse already knows that your lien has been withdrawn, its response will be quick and this will speed up things to have the tax lien removed from your credit report quickly.

5. Confirm the removal

After receiving a response from the courthouse, the three reporting agencies will act on the lien, and then send you a notification of how the dispute turned out. You have to confirm this to be sure that the lien does not appear on any of your the Confirm the removalee credit reports. If it was not removed in any of them, you should file a second dispute in writing. Include a copy of the notification that you received from IRS that your lien has already been withdrawn.

All this has to be done as soon as possible because tax liens can really affect your credit score if allowed to stay on your report a little longer. Credit card companies and loan lenders will consider this in issuing you with credit and deciding your credit limit, which may not work well for you especially if you have a major purchase to make like a car or a home.

Since IRS does not work together with the credit reporting agencies, this process can be very frustrating and confusing. It is even worse for someone who is not familiar with the tax laws. You might find yourself dealing with a release versus a withdrawal without knowing what to do in order to restore your credit to where it should be. That is why you should seek the help of a professional who understands tax liens better. Such a professional will know how to proceed with your particular case better to give you a good outcome in no time.