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What Is a Tax Lien?
A tax lien is a blanket lien. When a regular creditor gets a judgment against you, it can file its judgment with the appropriate government office in your state and then place a lien against property you own, such as your home or car. Then you're stuck. You can't sell the asset without first paying off the lien.
IRS liens work a little differently. For starters, they don't have to sue you. If you don't pay your tax debt immediately, you'll get a letter from the IRS giving you ten days (yep, ten days!) to make some sort of payment arrangement before the IRS files a tax lien. Once the tax lien is filed, it attaches to all of your assets automatically. It also shows up on your credit report.
For more information about tax liens in general, visit the IRS and read Understanding a Federal Tax Lien.
How Much Does a Tax Lien Hurt Your Credit Score?
A tax lien is a public record, like a bankruptcy or civil judgment. Public records almost always have a negative effect on your credit scores. Like every other negative credit entry, the degree to which a tax lien hurts your credit depends on how high your credit score is when it hits your report.
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In general, you stand to lose about 100 points – maybe more if you have a particularly high credit score – when a federal tax lien hits your credit report.
Tax Liens and Foreclosure
Most judgment creditors that hold a lien against your assets aren't actually going to seize your property. It's a long story as to why these creditors would rather hold your lien that call it due, but you generally have little to fear from collection liens and mechanics' liens. Tax liens are another ballgame.
The more equity you have in your home, the more attractive a tax foreclosure is to the IRS. They can and do seize the homes and cars of individuals who owe unpaid taxes. The moral of the story here? Do whatever you have to do to pay your federal tax debt and keep a tax lien off your credit report. Not only will it severely damage your credit score, it could leave you homeless.
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ReplyDeleteFrom reading this I have come to the understanding that if I have a Federal or State Tax Lien (Public Judgement) against my credit it is reported from the date paid.
ReplyDeleteMy followup question to that would be the following:
I had a State Tax Lien filed against me in 2005 for an emergency school tax levy passed while I was serving in the US Navy in 2000. Five years later I had a refund check seized to cover some of the balance. By the time I went through court and knew what was fully going on I had it paid off fully in February of 2008.
A letter to release the lien was mailed to my original address and I unknowingly did not know that I had to file this with a Clerk of Courts and pay yet another fee to have this shown up recognized as paid.
When I file this with the Clerk of Courts are the credit bureaus going to recognize this file date or the actual paid date of the lien?