Federal Tax Liens And Your Credit Rating

A federal tax lien gives the government a legal claim over your house or property, and acts as a security to cover your outstanding tax debt.

Before the government or IRS can file a federal tax lien against you, they have to go through a clearly defined process which is defined to help you pay your debt before getting into any arrears.

This process is as follows:

First, the government or IRS will assess the entire liability of everything they are owed.

Second, if their assessment deems that they are able to file the lien, and that it is financially viable, they will issue a notice and demand for payment. This is effectively a bill explaining how much they believe you owe in back taxes.

The final step in the process can be largely controlled by the individual in arrears - if you ignore or refuse to pay the outstanding debt within a period 10 days of receiving the bill.

If all these three criteria are satisfied, then, and only then, will a federal tax lien be created for the total amount of your outstanding debt.

When this tax lien is filled, it also acts as a public notification to your creditors that there is a federal claim on your house or property. One thing you should also be aware of is that this lien also applies to any further property you acquire after the federal tax lien has been issued.

This notice will also be used by any courts that may be involved if bankruptcy proceedings are initiated, to determine priority debts and creditors.

A federal tax lien will be attached to any and all property you own - including houses, cars etc - and to any and all rights you may have to other properties, which will also include receivable accounts if you have your own business.

Tax Liens and Credit Ratings

When a federal tax lien is filled against you (or any other form of tax lien) it is very likely it will have an adverse affect on your credit rating. If you are in a difficult financial position, this may not be a major concern to you right away, but you should certainly be aware of it for future credit requests.

Can a Lien Be Released?

Tax liens can be automatically released after a pre defined period of time (usually 10 years), or they can be released simply by paying the tax owed together with any service fees or charges that may be associated with having the lien released.

If you are able to pay back the tax before the 10 year auto release date, you will receive a Federal Tax Lien release notice within 30 days of settling the debt.

You can settle the debt by either paying the tax due, together with any interest accrued on the debt, offering a bond which in turn guarantees the payment of the debt.

Federal Tax Lien Record