Tips to Successfully Restoring Your Credit after Tax Liens

A recent article from CNBC brought to light some of the common misconceptions about the realities of tax liens and the effects they have on your credit score. A tax lien, which is a serious strike that occurs when you neglect or fail to pay a tax debt, can be longer lasting than you might have expected. Here’s some information and resources that may help if you’re dealing with a tax lien on your credit report.

What is a tax lien and how does it affect my credit?

Tax liens can vary depending on your individual situation. A tax lien can be one of the worst items to appear on your credit report, and can cause your credit score to drop significantly. Essentially, when you fail to pay your tax debt on time, the government can claim all or some of your assets. It can occur at the local, state or federal level.

It’s important to remember that any tax penalty against you becomes a matter of public record, and will negatively affect your credit score. Worse still, under federal law, unpaid tax liens can remain on credit reports indefinitely, though more often, credit bureaus tend to remove them after a decade or so. Once you’ve paid off the debt and the lien is released, it will be removed from your score seven years from the date it was filed.

Because no two credit histories are alike, there is no way to state equivocally how much change removing the tax lien will have or even what an average change might be for any given scoring system. Further complicating the issue is that there are many different credit scoring systems. So, the impact on one system could be very different from another because the numeric scales are different.

Do I qualify to have the lien withdrawn from my credit score?

You qualify if:

• your tax liability has been satisfied (you’ve paid what you owe) and your lien has been released; 
• you are in compliance for the past three years in filing your individual and business returns, and; 
• you are current on your estimated tax payments and federal tax deposits. 

Even if you haven’t paid the IRS what you owe, you may be able to qualify for this program if you currently owe $25,000 or less and have entered into a direct debit installment agreement where your payments to the IRS are taken from your bank account automatically.

How do I remove a tax lien from my credit report?

First, it's important to know that unpaid tax liens, unlike other public records, may remain on your report indefinitely. Because of this, the best way to get rid of a tax lien is to pay your tax debt in full.

If your credit report shows an outdated paid tax lien, you could file a dispute with the credit bureaus, just like you can for other credit report errors. You could also dispute a tax lien on your credit report if you have proof that you should not have been subject to it in the first place.

If the debt has been paid in full, then Form 12277 is your new best friend. As CNBC outlined, there are five suggested tips to ensure the lien is removed from your account using this form:

1. Locate your state IRS field collection office. This is where you will be sending forms or asking any questions you might have.

2. Search the Internet for IRS Form 12277 and fill it out.

3. Call the IRS office and ascertain the fax number. Inform them that you will be submitting Form 12277, and call a couple of days later to confirm they have received it. The turnaround time is about 30 days. If you haven’t received a letter confirming the lien withdrawal, follow up with another call.

4. Contact the three credit bureaus, Experian.com, Equifax.com and Transunion.com, and follow their specific step-by-step instructions for submitting the withdrawal. Within 30 days you should receive updated credit reports from each of the three credit bureaus.

5. Check each report to ensure that the tax lien was expunged. If any of the three bureaus did not remove the lien, contact the bureau continuously until it’s removed.

The Road to Recovery

BrandMortgage and the Loan Star Team want you to understand how tax liens work, how they affect your credit score and what you can do to deal with them. Because the laws regarding liens can vary, it's always smart to consult the proper resources, such as the IRS, your state or local tax authority or a credit counselor. Protect your credit by paying your taxes promptly to avoid tax liens appearing on your credit report whenever possible.

Should I Buy or Rent?

Who shot Kennedy? How were the Pyramids built? Is the Oscar dress gold and white or blue? Why didn’t Seattle run the ball on their last offensive play to win the Super Bowl? These questions may never be answered. However two questions that can be answered this week are: Who is Jihadi John and should I buy or rent? Scotland Yard has solved the first question and The Loan Star team will provide a clear answer for the latter question.

For years it has been one of the biggest parts of the American Dream, Home Ownership. Historically the benefits have been so advantageous that home ownership was “a no brainer”. While the drive to be a homeowner is still strong, the housing crisis of 2008 has caused some uncertainty in the mind of some. Let’s take a look at the benefits of renting vs buying.

REASONS PEOPLE RENT:

• Flexibility. Renting allows you to explore an area before making the longer-term commitment of homeownership. Unless you are certain about a specific neighborhood, renting allows time for research and discovery.
• Career uncertainty. If you think you might need to move in the near future, or are mulling job changes that span several areas of town or are located elsewhere in the country, you might want to rent. Buying ties you down to a greater extent.
• Income uncertainty. If you expect a pay hike or cut in the near future, that can change your borrowing ability as well as impact your ability to pay a mortgage.
• Bad credit. Creating a history of on-time rental payments can help you build the sort of credit you’ll need to qualify for a mortgage.
• No maintenance expenses. When a pipe leaks, you don't head to the store; you head for the telephone and call the landlord.
• Utilities (sometimes) included. In some instances, the landlord may pay for many utilities such as water, sewer, garbage, and, in some cases, even heat and hot water.

But there is a downside, too: You may have no control over the fluctuation of your rent, a big-budget item that can change often. Long-term budgeting becomes more difficult. The Loan Star Team would recommend purchasing a home if the following benefits appeal to you:

REASONS PEOPLE BUY:

• Equity. When you pay rent, you are paying your landlord’s mortgage or adding equity to his or her bank account. However, when you have a home mortgage, you increase your degree of ownership in your home with every payment. A general rule is that if you intend to stay in your property for at least five to seven years, the costs of purchasing the home are more likely to be offset by accrued equity and increased housing value. In the event that equity in the home grows to more than a 20-to-80 percent loan-to-value ratio, you will be able to borrow against your equity in the home.
• Tax deductions. You can deduct mortgage interest as well as your property taxes. Uncle Sam doesn't give renters this bonus. Not only that, but if you meet certain requirements the IRS won't apply a "capital gains" tax on your profits from the sale of your home. You can keep the first $250,000 in profit you make when selling the home if you're single, or the first $500,000 if married. In addition, those who work from home may be eligible to take deductions for their home office and portions of utilities.
• Creative control. You like dozens of pictures on the wall? Well, hammer away -- they are your walls now. Go ahead and paint them mango! Wish you had another room? Go ahead and add one.
• Maintenance choices. If you live in a house, you can decide how to approach maintenance, either doing it yourself or picking your own contractor. If you live in a condominium or homeowners' association, you may pay a monthly fee to have maintenance work covered by the association's contractors.

Still unsure of what’s the best option for you? Ask Gary Welch or Jeff Morris for help and we’ll talk through the various scenarios and available options together. Not sure how much you qualify for?

We’ll provide you with a free, detailed credit report and choose the most creative financing available for you.  

Call us at 770-888-2232 (Gary), 770-842-3480 (Jeff) or email us at gary@loanstarteam.com or jeff@loanstarteam.com to get started!

Debt Consolidation: Truth or Myth?

We often hear the words, debt consolidation, but what does it mean? Debt consolidation is a debt management plan. You may choose to create your own plan for paying off your debt, or choose to use a third party, such as a non-profit credit counseling organization.

Here are some important tips and information truths and myths that will help you decide which management plan best suits your needs:

HOW DO YOU KNOW DEBT CONSOLIDATION IS FOR YOU?
If you have most of your balances in credit or charge cards, personal loans and collection accounts then this may be a wise choice to pursue. These types of debts are called unsecured debts. If the balances you have for example are in old violation or parking tickets, tax debts or child support/alimony arrearages, then debt consolidation plans will not help.

Before you choose debt consolidation, review your debts carefully. You may only need counseling. With the Loan Star Team we can help you make your own plan to pay off your debt. Homeowners may consider refinancing as an option to reduce high interest rate loans.

TRUTH: DEBT CONSOLIDATION IS NOT BANKRUPTCY.
These terms can cause confusion. Debts will always be debts until all are paid in full. Bankruptcy is a discharge or settlement for debts. While debt consolidation payment plans seem like a solution, your credit report will be affected. If a payment plan to pay off your credit card is lower than what you normally pay each month, it may show creditors that you have trouble paying your bills.

TRUTH: DEBT CONSOLIDATION CAN WORK BECAUSE IT IS SIMPLE AND STEADY.
For those that need the discipline of a never changing monthly payment, then debt consolidation is the answer. You payment will be the same each month to each of your creditors until all your debts are paid in full. You will never need to worry about how much to pay-it is just that simple. One thing to remember…as your monthly payment is lowered, it will expand the time it will take to pay off your debts.

MYTH: YOU CAN CONTINUE TO CHARGE.
When you choose debt consolidation, you will need to be charge-free until all the debts are paid. This is a true adjustment for most accustomed to using lots of plastic.

TRUTH: YOU CAN DO THIS ON YOUR OWN.
At first, it may seem difficult, but you can do it. It is not easy to change your habits, but determination will work in your favor, financially and mentally. Ask your creditors for a reduction in rates, stop the frequent charging, revisit your budget and see exactly how much you can afford to spend. Make all efforts to be diligent in saving and making payments on time. Your credit report will be affected positively and you will be more confident in securing a loan for your home needs.

Get advice from the professionals before considering debt consolidation with agencies. The Loan Star Team is at your doorstep to provide this guidance and counseling. With the lowest interest rates of all times, consider refinancing to a lower mortgage rate and pay off your debt faster!

We provide you with professional help for your refinancing and future home loan needs. Call us at 770-888-2232 (Gary), 770-842-3480 (Jeff) or email us at gary@loanstarteam.com or jeff@loanstarteam.com to get started!