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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.