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Monday, March 8, 2010

Time Limit for Reporting Tax Liens

Tax liens are treated differently than any other item on a credit report.  Most adverse items are allowed to be reported for seven years from the date of delinquency, regardless of whether the item is ever paid.  Tax liens, on the other hand, potentially fall under two different seven year reporting periods.

15 U.S.C. 1681c(a)(3) says that paid tax liens are allowed to be reported for seven years from the date they are paid.  All other tax liens fall under the catch all provision found at 15 U.S.C 1681c(a)(5) and are allowed to be reported for seven years from the date they come into existence (since they are immediately considered adverse). 

Thus, you could have an unpaid tax lien reported for seven years, fall off the report, then, when paid, reappear for another seven years.  It is therefore not in a consumer's best interest (at least as far as credit reporting) to pay a tax lien after seven years.  But, it would be in the consumer's best interest to pay the tax lien as early in the seven year unpaid tax lien reporting period as possible, since this will allow both seven year periods to run more or less concurrently.  Kind of like a two for one sale.

But what about tax liens that are satisfied and/or released without any payment.  For instance, I had a client call me about an eight year old tax lien appearing on his credit report that had been "released" due to his bankruptcy about four years ago.  In this instance, the lien should have fallen off the report as obsolete since it was over seven years old and had never been paid.  A release does not always mean payment.  This is one such instance.  Another is where the lien is entered in error and released not because of payment but because of a recognition of the erroneous nature of the lien.

Unfortunately, the credit bureaus do not appear to have a mechanism in place to recognize the interplay between 1681c(a)(3) and 1681c(a)(5) when applied to tax liens.  As a result, tax liens often appear on consumers' credit reports longer than they should and often require a dispute to the credit bureaus (or more) to get them removed.

4 comments:

  1. good~ keep sharing with us, please....I will waiting your up date everyday!! Have a nice day........................................

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  2. Thank you for this very informative article of yours. You have explained everything well. I appreciate that you shared this to us.

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  3. I'm afraid I don't understand. My understanding (and experience) is that unpaid tax liens can endure perpetually and are subject to removal ONLY after 7 years from the date they are paid.

    I've heard some individuals refer to a California credit reporting law that compels removal for California residents of any unpaid tax lien that's ten or more years old. Can you please offer comment and whether or not similar limiting provisions exist for residents of other states?

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