Federal Tax liens have not been reported on credit reports since 2017. There were far too many errors in credit reports where back taxes were paid, but a lien release had never been filed. This article will focus on how you can remove a tax lien from your credit reports and what are your available options. Let’s get straight into the solutions.
Federal Tax Liens, Credit Bureaus and Monthly Payments
Under the IRS fresh start program, if you entered a payment agreement and made three payments over three months, they would voluntarily release a lien. The IRS accepts lump sum or instalment payments and often makes payment plans over the phone.
However, you still need to request the bureaus to remove tax liens from your credit report. The record of unpaid tax liens may be untrue, outdated, or misleading. This will qualify under the fair credit reporting act to remove a Federal or state tax lien. But you still have to request removal. Include the reason why the tax liens should not be reported.
How to Remove a Tax Lien?
Getting a state tax lien settled and removed from your credit report requires the same basic steps for a state tax lien as a federal tax lien. But with 50 different states, you have 50 different sets of rules for settling state tax debt. After the tax liens have been resolved, you only have to remove them from the credit report.
If you can provide proof of removal to the major credit bureaus, you can have any outdated, misleading, or untrue information corrected in the three major credit bureaus. Generally, this requires setting up a payment plan, paying the tax department or obtaining a lien withdrawal.
Effect of Your Credit History and Unpaid Tax Liens
An unpaid tax lien can remain on your credit report for up to seven years. It is one of the worse items which can appear on a credit bureau report.
But an income tax debt will continue to be collectable for at least ten years, long past the statute of limitations for a credit card. Judgments, bankruptcy, and foreclosures are less important than tax liens to your credit report.
How to Remove Tax Liens and Tax Debt?
We will cover how to eliminate a tax lien. But the process is no different from removing a federal tax lien. It often starts with a hardship letter.
Income tax liens self-release the tax lien ten years after the return is due. Often you ask for a currently uncollectible status or make a partial payment plan and wait them out.
First, you should review what you can do to destroy or satisfy a tax debt.
Getting the Tax Lien Notice
You should get a tax lien notice before a bank or wage garnishment. How can a tax lien affect the personal property? It is an unrecorded lien.
The tax lien can exist but not be reported as a tax lien. Income tax liens against personal items are largely secret liens where the liens exit on a car, but the lien does not appear on any record.
Removing a tax lien from your credit reports does not eliminate the tax debt. If you are applying for a mortgage and the tax debt still exists on the deed records, you will not get the mortgage unless you satisfy or strip off the tax lien first. But getting the state tax lien removed doesn’t mean the debt won’t come back later if it is still due.
Personal Property Tax Liens
The tax department describes their lien as including everything you own, even the dirt on your shoes. It is a legal claim against a bank account or wages, and they do not have to go to court to enforce the lien.
The lien does not have to be recorded to attach to the property as a lien. They can attach a social security check within limits.
Technically their lien even attaches to retirement accounts. The IRS has wide discretion to exercise its levy authority. IRC § 6331(a) provides the IRS may “levy upon all property and rights to property,” subject to some exempt property under IRC § 6334. IRS has a policy not to levy retirement savings unless you engage in “flagrant conduct.”
IRS Files How an Unexpected Tax Lien Appears at Your Bank or Employer
An IRS garnishment is a letter sent to your employer or bank requiring them to turn over assets to the tax department. Both a state and federal tax lien can do this. The federal tax lien is superior to the state tax lien. But both can garnish wages, bank accounts, and even furniture from home.
All they do is send the letter to your last known address just before they send the letter to your bank accounts and employer. You don’t have to get the warning notice. And they don’t have to go to court to issue the garnishment.
Most people will enter a payment plan for unpaid taxes and make arrangements for the tax liability. But if the IRS will not let you up, you can file bankruptcy to stop bank accounts and wage garnishments.
How Does Bankruptcy Affect a Tax Lien?
Bankruptcy does not remove a tax lien. It makes garnishments and collections stop. An income tax debt is dischargeable in bankruptcy three years after the return is due.
But Personal property often creates problems if you file bankruptcy and claim the property is valuable. If you place a high value on your clothes or car, you may have to repay taxes less than three years old back more fully.
A Chapter 13 has to repay tax liens in full but often with reduced interest and penalties.
You may think your home is all they have a lien on, but you’re mistaken. A tax lien attaches to everything you own, including property you hold jointly with a spouse, child, or parent.
Don’t think they won’t take personal property items if they want to. But bankruptcy stops (stays) internal revenue service collections.
Non-filing Returns are the Worst Tax Error
If you don’t file returns, the statute of limitations and csed (expiration date) never starts. You can end up owing the tax forever plus interest and penalties. The clock never runs out on unfiled returns or unpaid trust taxes.
Normally bankruptcy means unpaid income tax debts have been discharged if you plan the bankruptcy. A motion can be filed to ensure a tax lien removal. Without removal, the tax lien still appears on the county deed records.
But if the debt is discharged, your financial assets are no longer at risk. The IRS can no longer collect the unpaid tax bill if you discharge the debt. How long does a tax lien stay on the deeds? Normally forever. The IRS will often never file a lien release.
Managing State and Federal Tax Liens
If you have a State tax lien, you tend to have a federal tax lien. The federal line will take priority in collections over the state tax lien. The last lien which will be paid would be local taxes, such as a Louisville Metro tax lien. There are multiple types of liens that the tax departments can assert.
What you can do with tax debt is you can often offer one of five different methods we discuss on another page to pay or manage the debt. You can:
- Offer a payment plan
- Offer a partial payment plan
- Apply for the currently uncollectible status
- Make an offer of compromise
- Bankrupt the income tax
Managing a Louisville Metro Revenue Commission Tax or Local Tax Lien
Louisville Metro Revenue Commission taxes are not income taxes. Instead, they are essentially a business and occupational tax. These taxes are similar to trust taxes and are not dischargeable in bankruptcy. You can generally manage and repay them, but you cannot discharge them. You can view frequently asked questions about bankruptcy to have answers to your confusion.
However, Kentucky law does allow you to run the statute of limitations on the debt if it is a judgment making it unenforceable. However, the Louisville Metro Revenue tax department will often file a judgment lien at the 14th year and 11th month at the last minute against your home.
Often the best defense against these local taxes, if they are in default, is to make a payment arrangement. Some people have moved outside the county to avoid enforcement by the Louisville Metro Revenue Commission.
Getting State Tax Liens Withdrawn
Some state tax departments will remove a lien if the lien is preventing you from refinancing a house or running a business. This should not be a problem if there is no equity in the property.
Essentially the lien is worthless and doesn’t help the tax department or the taxpayer. You must make a tax lien withdrawal request to get the tax lien withdrawal.
They will not remove the lien if there is equity in the property that could pay the lien. To remove the state lien, the state tax department will often want you to enter into a payment plan.
Getting State Tax Liens Removed from Your Credit Reports
Removing the record of a lien from your credit report is the same as removing a judgment. Most people turn in a dispute under the fair credit reporting act and dispute it.
They normally attach proof of the agreement to pay the tax. Often the state tax department will not even respond as to whether it was an unpaid tax lien.
Getting a State Tax Judgment Removed from Your Credit Report
Lexington Law firm can help remove items from your credit report after you have finished payment plans and no longer owe money for any unpaid lien. But this is something many people do by themselves.
Lexington law exists to remove negative items from credit reports. Many credit repair companies will take the money and not deliver services. And only untrue items can be removed from public records. Normally items that are not disputed are removed.
Credit Bureaus and Your Credit History
Your credit report is important. Without a good credit score, your interest rates will be higher. Your financial health relies on the three major credit bureaus and your credit score. People cannot obtain a mortgage or car loan until the three credit bureaus are corrected.
IRS form 9465, the Direct Debit Installment Agreements
A Direct debit installment agreement is often set up, so clients and credit reporting agencies have a record of the payment when you dispute records. An installment agreement is just one answer to getting a lien withdrawn.
We provide legal advice if you need a hearing for your case or other alternatives. The IRS 9465 form is at all IRS offices, and similar state forms are available.
Contact Us, Get Tax Lien Removal from Credit Reporting Agencies
Our license before the United States Tax Court in Washington, DC, is license number 51. We handle tax liens and tax resolutions. There are several different ways tax liens can be settled with the internal revenue service and state departments so you can improve your credit score and stop the harassment.
Call 502-625-0905 if you have a problem with the Kentucky State Department of Revenue or Louisville Metro Revenue- Nick Thompson
Resources for Bankruptcy
Getting Started with Your Bankruptcy
Louisville, Kentucky Bankruptcy Forms
Getting Your Fresh Start Through Bankruptcy
Your Fresh Start on a New Budget with Bankruptcy
Nick Thompson – Kentucky Foreclosure & Bankruptcy Attorney
If you are considering bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.