Overland Park Tax Lien Attorney
How Tax Liens Work & How to Get Out from Under Them
Being in debt to anyone is never a good feeling. When that “someone” you owe money to is the United States government, the State of Kansas or your home county or city, that bad feeling can become real fear–especially when the notices start coming in the mail. When governments start putting liens on your property is when you need to call a smart and tough tax lien lawyer for help.
What Is a Tax Lien?
When taxes are in arrears, the government places a lien on property. A common example would be to place a lien on your house. At this point, the government is not seizing your home (although that may come later). What they are doing is effectively expressing their interest in your property as a means of satisfying the debt.
The government is not the only actor who can place a lien. Creditors in the private sector also place liens when bills go too far into arrears. Nor is your home the only property that can have a lien placed on it. Liens can be placed against anything that you might have otherwise used as collateral to secure a loan.
A lien puts creditors first in line, so to speak, to recoup their debt. Tax liens take precedence over all other debt. While no formal action is being taken, the lien is a clear warning that financial storm clouds are ahead if the outstanding debt is not addressed.
The Tax Lien Process
If your debt is on federal taxes, the Internal Revenue Service (IRS) must first send a letter called Notice of Demand for Payment. If the debt is not paid in 30 days, the IRS can attach a tax lien to your property.
The clock begins ticking on what is a 10-year statute of limitations for federal tax liens. That’s how long the IRS has to collect on the debt before it expires.
What’s looming in the background is a levy on the property. That’s when the IRS officially seizes whatever they have placed the lien against, as a means of satisfying the debt.
This process generally plays out with the IRS sending multiple letters, each one a little nastier in tone than the one before it. At whatever point the government is tired of waiting, they will issue a Final Notice of Intent to Levy and Notice of your Right to a Hearing. You will receive this notice by either registered or certified mail and have 30 days to appeal and seek removal of the levy.
Along with the right to appeal comes the opportunity to seek payment arrangements. If a payment plan is not set up, or the appeal denied, the IRS can move on the property and foreclose when the 30-day window has expired.
The process in the state of Kansas has some different timetables and terminology but is not fundamentally different. There is a 60-day window for the taxpayer to make their account current. If this does happen, the Kansas Department of Revenue will issue a tax warrant, at which point a lien may be the result.
At the local level, there is a much longer window. Real estate property taxes must be at least three years past due before liens and levies come into the picture.
The most immediate problem that will come with a tax lien will likely be on your ability to get credit. How fast the government moves to turn a lien into a levy can vary from case to case. But even if the lien persists for several years, it will very likely take its toll on your ability to obtain a line of credit.
One caveat to point out here is that when you get your credit score, you will not see the liens per se as a part of it. Credit bureaus made changes over 2017-18 that officially removed liens from the report. However, the money owed still appears.
A potential lender who orders your credit report may very likely deduce that if you owe any level of government money, that liens either are in place or may be in the near future. Not only may it raise questions in their mind about your ability to pay on the requested loan, but the lender can also know that in the event they needed to place a lien, they would be in line behind any government agencies.
The lien will also make it exceptionally difficult, if not impossible, to sell any property the lien has been attached to. Perhaps your home was what the government expressed interest in. Now you want to sell the house as a means of restructuring your finances but doing so would mean that the new owner will inherit the lien. How excited do you think they’ll be about that prospect? Liens are a matter of public record and any realtor’s basic due diligence will uncover them.
Even smaller steps, like refinancing your mortgage, will probably be more difficult with the damaged credit that often results from a lien.
Put simply, tax liens often make solving the root cause of the financial situation that created the lien even more difficult. Tax liens are the equivalent of throwing dirt on top of the person already trying to dig themselves out of the hole. It’s imperative that you work with someone to find the most constructive possible solution.
Governments also have the authority to sell the lien to private investors. What does that mean in actual practice? Consider the following scenario…
You’re in arrears with the IRS, fighting the good fight as best you can to try and keep current, but you can’t seem to catch a break. The tax collection agency places a lien on your home. It’s scary, but you’re hoping that perhaps you still have some time. After all, government agencies are nothing if not slow-moving. You aren’t so naive as to think they’ll let the 10-year statute of limitations expire, but you hope it might take a year or two. And even if the IRS does want their money sooner rather than later, you hope your good faith efforts at paying what you can will be considered when seeking payment arrangements. It’s all very reasonable.
Instead, the IRS sells the lien to a real estate developer with an eye on your neighborhood. The developer has zero interest in your good faith efforts to pay and no patience for any type of restructured arrangement. They want one of two things–the money in full or the property. As the holder of the lien, they will have the right to get it.
If the Kansas Department of Revenue is the creditor, there is a little more protection. The lien itself will not be sold, but the state may well choose to levy the property and then sell it at an open auction. At the county level, property may also be sold via the judicial tax foreclosure process.
Officially, no, bankruptcy does not eliminate a lien of any kind. The judge in a bankruptcy case does have the option of dismissing liens. However, if the lien is with a government body, that’s not a promising avenue to count on.
What bankruptcy can do is allow you to restructure all outstanding debts and other expenses, a step that might make settling the tax lien more realistic. It’s hard to deal with any debt when you feel besieged by creditors. The bankruptcy process allows you to refocus and start pinpointing the debts that must get priority. Those start with anything owed to governments.
Sarah has dedicated her practice to the cause of helping consumers facing bankruptcy. She has deep experience in all facets of bankruptcy law and proceedings and will work tirelessly with you to find solutions to the problems that are keeping you awake at night. Dealing with creditors is hard and dealing with governments you owe money to is worse. Don’t do it alone.