Debt Consolidation and Credit Card Counseling

Credit report delinquencies come and go, but taxes are forever

Most people have at least some notion of how a credit report works. When you are issued a loan or a credit account, the companies that issue them to you report to the credit bureaus whether or not you pay in full and on time. If you do, the reports will show that you did so, and your credit score will rise accordingly. If you fail to pay, your score will fall and the debts will show as delinquencies on your report. For most debts, the notations will stay for up to seven years. At that time, paid or not, they will fall off the credit report as required by law.

In theory, a consumer could see his or her credit score rise if a debt that was unpaid for seven years disappeared from the credit report due to time. But some types of delinquencies never go away - income taxes among them. If you fail to pay them, they will stay as negative marks on your credit report for as long as they go unpaid - ten years, twenty years, or fifty years. The reasoning is simple - the government wants to get paid. 

The government isn’t like a normal business; if no one pays, nothing functions. So Federal law has been set up in such a way that if you fail to pay your taxes, you will be hurt indefinitely by it.  Not only will your tax lien remain on your credit report indefinitely, but any tax lien cannot be wiped out by bankruptcy, either. If you file for bankruptcy, the judge may throw out $50,000 in credit card debt, but if you owe $5000 in back taxes, you will have to pay.

Failure to pay for a long period of time could affect your ability to get a job, a car loan, a mortgage or even a place to live. Any time you apply for a loan, the lender will see that you are someone who doesn’t pay their taxes.  Since lenders like to get paid, too, it only makes sense that a tax lien on your credit report will stick out like a sore thumb to any prospective lender or creditor that looks over your finances.

If you are delinquent with the Internal Revenue service, your best bet is to pay them. An even better idea would be to consult with a tax attorney and have him or her meet with the IRS to discuss your situation. In some cases, it is possible to negotiate with them for a lower payment, thus making it easier to pay off your lien. The sooner you do that, the sooner you can watch your credit score increase.

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