A tax lien is a government claim on your property due to unpaid tax debt. A tax lien can originate from both federal and state sources. And it can be placed on property including financial assets, personal property and real estate holdings. A tax lien does not mean that the government will imminently seize your property. It does mean that the government retains the first right to your property over other creditors. In the worst-case scenario, the government can sell your property to resolve the unpaid debt.
Additionally, and just as importantly, the tax lien becomes part of the public record and shows up on your credit report, making it nearly impossible to obtain future credit or loans. In short, if you have a tax lien – handle it – quickly.
Here are a few points to keep in mind when handling a tax lien.
Don’t Ignore it
This is a temporary problem that could ruin your financial future. Do not ignore notices from the tax authority. Address the problem immediately. If you dispute or disagree with your tax bill – find a tax specialist who can offer sound analysis and/or represent you with the tax authority.
Pay the Debt
The fastest way to get rid of a tax lien is to resolve the debt. If you cannot afford to pay the debt in full – contact the tax authority and work out a payment plan. For example, the IRS offers something called the Direct Debit Installment Agreement which is a payment plan that automatically withdraws money from your account each month to satisfy the debt.
Make Sure It’s Removed From Your Credit Report
Paying the debt removes the imminent threat, but the impact of the lien can haunt your credit report for years to come. The fact is that the government is supposed to release the lien within 30 days. However, this is often overlooked and the lien can keep popping up on your credit report. To be sure that a tax lien is removed from your credit report – contact the IRS or local tax authority, or consider using the services of a tax attorney or qualified accountant to address the issue.
There are actually many ways to resolve a tax lien and many avenues for getting it off your credit report. The laws are complicated and ever-changing. Advice from a tax specialist can help you work out the best option for handling the current dilemma and avoiding problems in the future.