In Summer of 2017, new reporting standards from the National Consumer Assistance Plan were released in relation to both tax liens and judgment liens. In a nutshell, going forward, for either a tax or judgment lien to be reported on your personal credit report, the reporting must include all of the following:
- Your name
- Your address
- Your social security number
- Your date of birth
- Required courthouse visits every 90 days to make sure records are updated
This new reporting feature might provide a benefit to millions of Americans, due to having old tax or judgment lien(s) removed from their personal credit reporting. However, note that just because a tax lien in particular is removed from your personal credit report, that doesn’t dissolve you of paying for the debt (you can check your personal and business credit data with a free Nav account and get alerts when negative information hits your reports). For this article, I wanted to do a brief overview of tax liens and judgment liens.
A federal or state tax lien is a legal right of the government on particular assets and properties after you fail to pay an outstanding tax debt. It can happen to individuals and businesses alike. Note that just because you fall behind paying taxes, that doesn’t automatically get a tax lien.
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For a tax lien to manifest, you would have to neglect paying your tax bill, the IRS would send you a “Notice and Demand For Payment”, then you would still neglect to pay the full balance within the time period allowed. From that point forward, a tax lien is generated through the tax authority filing a “Notice Of Tax Lien” public record to alert creditors of the situation.
A structured payment plan can be arranged with the tax authorities to pay off the tax lien over time, which is likely to include various additional fees that will bump up the total balance due. If one still doesn’t make payments in full or on time with the payment plan, then there could be a levy of various assets and properties to help settle the outstanding tax debt.
A tax lien will hurt your credit scores significantly and are likely to not be discharged in any type of bankruptcy filing. In general, a tax lien might remain on your public record for 7 (or longer) depending upon when payment of the total balance due is completed. The new reporting standards released in Summer 2017, are required going forward for the tax liens to be placed on your personal credit reports, which tax authorities are actively making said updates to make sure new tax lien cases are placed.
Judgment liens are a result of one party (plaintiff) seeking to obtain a legal monetary civil judgment against another party (defendant), as a result of a variety of things, including breach of contract, emotional distress, injury, fraud, theft, and more.
When one of these events occur, the defendant is found to be guilty, and the defendant doesn’t have applicable insurance to cover said event (cases of fraud are usually never covered), then the judgment would be placed on the defendant for payment remittance to cover the associated damages (whatever amount that might be). If said damages are not paid within a period of time, the judgment creditor could seek to turn over the information to a collection agency, attorney, or another legal official to add the judgment to the debtor’s credit report and create a judgment lien on various assets and properties of the defendant, which could be seized to cover the damages.
However, unlike tax liens, some judgment liens could be removed during the bankruptcy process and some defendants are actually encouraged by attorneys to file bankruptcy if situations such as high judgment liens create a dire financial situation.
Also the new reporting standards released in Summer 2017, are required going forward for the judgment liens to be placed on your personal credit reports, which create difficulties in small claims court where attorneys are not involved in the process, leading individual judgment “creditors” to have a hard time collecting on judgments that were generated. A judgment lien might remain on your credit report for up to seven years, following payment of the balance in full.
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