Checking your credit report is the best way to keep abreast of the information being reported to the credit bureaus. The information contained on your credit report can have a huge impact on various aspects of your life, from qualifying for credit or landing a new job. When a tax lien in placed on your property, this information appears on your credit report and will have a negative impact on any financial goals you wish to achieve. Here is a closer look at tax liens and how to have them removed from your credit report (also read our guide on everything you need to know about tax liens).
Where to check and monitor your credit report
- Equifax Credit Watch Gold 3-in-1: This will give you comprehensive credit file monitoring and automated alerts of key changes to your Equifax, Experian and TransUnion credit reports. You will also receive up to $1,000,000 of identity theft insurance.
What is a Tax Lien and How Does it Happen?
When a lien is placed on your property or assets is allows a creditor to retain lawful possession of said property until you are able to repay the debt owed in full. There are many instances where a lien can be placed on your property, one of which is past due taxes owed to the IRS. If you have a lien on your property, you must take care of any monies owed before you regain the right to full ownership of that property. An IRS tax lien occurs when you have been contacted by the IRS in regards to taxes owed and have failed to either make a payment or make arrangements to repay the tax bill owed. According to the IRS, a tax lien may be placed against your property after the following three steps:
- The IRS determines you owe a tax liability.
- The IRS has contacted you with a notice that asks for payment of your tax liability.
- The taxpayer fails to make a payment in full within 10 days of receiving the notice.
In the case of a federal tax lien, all of your assets will be covered, therefore you must repay the tax bill in full plus interest and penalties before the lien will be removed from your property. This lien covers any money you make from your current assets and future gains until the tax liability has been repaid.
A lien placed by the IRS will supersede any other liens you may have on your property including your mortgage. A tax lien is reported to the major credit reporting agencies and becomes a matter of public record. As a result all current and potential lenders will have access to this information. Knowing that the IRS will be first in line to collect money owed, this makes you a higher risk for lenders making it almost impossible to qualify for loans or other forms of financing. Having a tax lien on your credit report can be quite damaging, therefore you have to take the steps needed to address the issue and resolve any tax bill owed to the IRS.
Once a tax lien appears on your credit report, the only way to remove that tax lien is by working with the IRS to obtain a certificate of release of lien which can be submitted to the credit bureaus by the IRS, the taxpayer or both. As a general rule the IRS does not hand out these certificates until the tax liability is paid in full, however in rare cases, they will release the certificate when payment arrangements have been made. If you qualify for an Offer in Compromise (the IRS version of debt settlement), arrange for an installment plan, obtain a bond or if the lien is no longer enforceable due to the statute of limitations expiring, you may be able to get a certificate of release without paying the tax bill in full. Regardless of the method used to obtain the certificate, you must ensure the credit reporting bureaus receive this information in order to have the lien removed from your credit report.