Does a Federal Tax Lien deter collection activity from CAs?

[tweak]

I have just completed a successful Offer in Compromise with the IRS. They had filed a Federal Tax Lien against me for $31,000 in March 2010. The IRS released my lien, and I have requested that they officially withdraw the lien per their recent policy change as outlined in this thread.

 

I am now beginning my credit repair process. Besides this public record (the lien), I have about ten baddies on my credit report, which are all either collections or charge-offs. Most of these are from 2009, and are within the SOL for Georgia where I live. Three are in the $5000 range, which are large enough for them to consider suing me. (I have already opted out, and am in process of deleting old addresses with the CRAs.)

 

I have at least two years to clean up my report, and do not plan to apply for major credit or a new job before then so I can be patient. I do not own a home or vehicle that could be attached to any judgment. My scores are currently around 600.

 

Here are my questions:

 

1. Has anyone else noticed that a Federal Tax Lien seems to stop collection activity from CAs?

After my tax lien was filed in 2010, I stopped receiving most letters and phone calls from collection agencies. My understanding is that the federal lien takes priority over any judgments that other creditors might be able to get against me, so it is not worth their effort.

 

2. My strategy is to have the lien officially withdrawn in court, but NOT inform the CRAs until I have finished disputing other negative TLs. Any thoughts?

I realize that the Federal Tax Lien is the most negative TL on my credit report. However, it may be keeping CAs from actively collecting and even attempting to sue me. My thinking is that I can leave the tax lien on my credit reports as a deterrent to collection activity while I dispute the other negative TLs. After I have removed other baddies, then I will send the lien withdrawal dispute to all three CRAs. If this is a viable strategy, I may even leave the lien on my credit report until the SOL for collection has expired on my other reported debts (2015 in Georgia).

 

3. Any gotchas or unintended consequences?

Does anyone think that if I wait two or more years to get the tax lien off my credit reports that the CRAs may change their policy and not honor the IRS withdrawals any longer? Clearly I want this tax lien off my report eventually, as it is the most damaging TL. But, on the other hand, the presence of the lien on my CR might be preventing creditors and collectors from suing me.

 

Thanks in advance!

-tweak691

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[Gill]

First off, congrats on you being able to get your OIC accepted, there are less than 11% of the submitted offers accepted by the IRS. Something to consider with your OIC, the automatic stay of your tax liens with regard to your tax liabilities for your OIC will be automatically withdrawn. Anotherwords, it's all done thru the IRS computer system. As a result, the IRS sends you and the courts a notice of satisfy on your federal tax liens filed; so, you will see an update on your credit reports regardless if you do nothing. As a result, if a CA pulls your credit, or, get automatic updates, they will see that the lien is satisfied, or, changes in your credit report. The other side of this is that you will see the tax lien stay on your credit reports from anywhere from 7 to 10 years depending on the CRA.

 

You're best to get your release of tax lien and apply for the withdrawn of the tax lien to put yourself in a better financial situation. For you to have your OIC accepted demonstrates your financial situation; Any smart CA would see that. You will see a big jump in your credit score when you're able to do this. Best of luck.

[SomeGuyInCA]

I have just completed a successful Offer in Compromise with the IRS. They had filed a Federal Tax Lien against me for $31,000 in March 2010. The IRS released my lien, and I have requested that they officially withdraw the lien per their recent policy change as outlined in this thread.

 

I am now beginning my credit repair process. Besides this public record (the lien), I have about ten baddies on my credit report, which are all either collections or charge-offs. Most of these are from 2009, and are within the SOL for Georgia where I live. Three are in the $5000 range, which are large enough for them to consider suing me. (I have already opted out, and am in process of deleting old addresses with the CRAs.)

 

I have at least two years to clean up my report, and do not plan to apply for major credit or a new job before then so I can be patient. I do not own a home or vehicle that could be attached to any judgment. My scores are currently around 600.

 

Here are my questions:

 

1. Has anyone else noticed that a Federal Tax Lien seems to stop collection activity from CAs?

After my tax lien was filed in 2010, I stopped receiving most letters and phone calls from collection agencies. My understanding is that the federal lien takes priority over any judgments that other creditors might be able to get against me, so it is not worth their effort.

 

I think this is unlikely. A tax lien doesn't imply that the IRS is actively seizing your assets; most people who have one are in a repayment agreement and while a judgment might not be enforceable while the lien is in place, that doesn't prevent them from coming after you for what they can get. It may make you look like a less worthy target for them.

 

2. My strategy is to have the lien officially withdrawn in court, but NOT inform the CRAs until I have finished disputing other negative TLs. Any thoughts?

I realize that the Federal Tax Lien is the most negative TL on my credit report. However, it may be keeping CAs from actively collecting and even attempting to sue me. My thinking is that I can leave the tax lien on my credit reports as a deterrent to collection activity while I dispute the other negative TLs. After I have removed other baddies, then I will send the lien withdrawal dispute to all three CRAs. If this is a viable strategy, I may even leave the lien on my credit report until the SOL for collection has expired on my other reported debts (2015 in Georgia).

 

You don't have tax liens withdrawn in court - the process requires the filing of a lien withdrawal request, as detailed in the master thread on this topic. There is no court involvement at all.

 

3. Any gotchas or unintended consequences?

Does anyone think that if I wait two or more years to get the tax lien off my credit reports that the CRAs may change their policy and not honor the IRS withdrawals any longer? Clearly I want this tax lien off my report eventually, as it is the most damaging TL. But, on the other hand, the presence of the lien on my CR might be preventing creditors and collectors from suing me.

 

You have stated that the IRS has already released the lien. The lien release will probably be picked up by all three of the CRA's without you doing anything, and would eliminate any advantage you may be receiving from the lien being on your reports. This is because a released lien means the IRS has relinquished any claim they have on your assets. Therefore, they no longer assume a priority in any squabble to pick clean your carcass, and any creditor who was serious would see that as a green light (assuming they care at all). I don't think you therefore would have any advantage at all to waiting to get the lien withdrawn.

 

There may be some advantage in looking as if you can't pay, but I think that is probably very small indeed and not consistent from creditor to creditor. A released lien, aside from its impact on your credit scores, is the same as having no lien from the perspective of law. So, I see no upside to having a released lien reporting for you, and the very obvious downside that it will continue to depress your scores.

Thanks in advance!

-tweak691

Edited November 24, 2012 by SomeGuyInCA

[tweak]

Thanks, Gill and SomeGuy for your quick responses!

 

My strategy was erroneously based on the assumption that the CRAs would continue to report my lien as active unless I did something to get it updated. Since you both say the CRAs will automatically report the lien as "released", this clearly presents no advantage to me. I have already filed the appropriate forms with the IRS to have the lien withdrawn, and when that is complete I will make sure the CRAs delete the lien TL.

 

I certainly hope that the new status of the tax lien will not give the green light to CAs and OCs to now sue me!

 

***

I miswrote "in court" below. I do understand the process, and have requested that the IRS withdraw the lien now that it is released/satisfied.

You don't have tax liens withdrawn in court - the process requires the filing of a lien withdrawal request, as detailed in the master thread on this topic. There is no court involvement at all.

 

Thanks!

-tweak691