The following article is provided solely for informational purposes; it is not meant to be guidance or instruction on credit repair.
No one wants to have their wages garnished. Your paychecks being garnished most likely indicate that you have fallen behind on a debt and that the creditor has taken you to court to force you to make payments. Once the debt is settled or if you and the creditor have reached a different agreement, the garnishment will stop.
Does a garnishment affect your credit score, and is there any reason to pay off a debt quickly once one is in place, even though it will undoubtedly reduce your income and make it more difficult for you to pay your bills on time each month?
Understanding the Impact of IRS Liens and Levies on Your Credit
Tax season can be a stressful time, especially if you find yourself owing money to the IRS. But what happens if you can’t pay your tax debt? The IRS has several tools at its disposal to collect unpaid taxes, including liens and levies. But how do these actions affect your credit score?
What is a Tax Lien?
A tax lien is a public notice that you owe the IRS money It doesn’t take money from you directly, but it does put a freeze on your assets. This means you can’t sell your home or other property without first resolving your tax debt with the IRS
What is a Levy?
A levy is a more aggressive collection tactic. The IRS can use a levy to seize your assets, including your wages, bank accounts, and property. This can have a significant impact on your ability to pay your bills and meet your financial obligations.
Do Liens and Levies Affect Your Credit Score?
The good news is that liens and levies themselves do not directly impact your credit score. However, there are indirect ways in which they can hurt your credit.
- Missed Payments: If your wages are garnished, you may not be able to pay your bills on time. This can lead to late payments and negative marks on your credit report.
- Increased Debt: If you have a tax lien or levy, you may be more likely to take on additional debt to cover your expenses. This can increase your debt-to-income ratio, which can hurt your credit score.
- Damaged Reputation: Having a tax lien or levy on your record can damage your reputation and make it more difficult to obtain credit in the future.
Recent Changes to Tax Lien Reporting
In the past, tax liens were reported to all three major credit bureaus. However, in 2017, the IRS made changes to eliminate civil judgment records from credit reports. This means that as of 2018, tax liens are no longer reported to credit bureaus.
What to Do if You Have a Tax Lien or Levy
If you have a tax lien or levy, it’s important to take action as soon as possible. The longer you wait, the more difficult it will be to resolve the issue. Here are a few steps you can take:
- Contact the IRS: The IRS may be willing to work with you to set up a payment plan or offer other relief options.
- Hire a Tax Professional: A tax professional can help you understand your options and negotiate with the IRS on your behalf.
- File for an Offer in Compromise: If you can’t afford to pay your tax debt in full, you may be able to file for an Offer in Compromise. This allows you to settle your debt for a lower amount.
While a tax lien or levy itself won’t directly impact your credit score, it can have indirect consequences that can damage your credit. If you find yourself in this situation, it’s important to take action as soon as possible to resolve the issue and protect your credit score.
Wage Garnishment Isn’t Included on Your Credit Report
So does a wage garnishment hurt your credit? Technically, no, not really.
From a credit perspective, the damage has more or less been done. Your credit may have suffered, but it was the missed payments that damaged your score, as your wages are probably being garnished as a result of having missed payments on one or more debts.
Most credit reports typically don’t reflect the fact that a garnishment is being used to pay off an old debt, be it tax or credit-related. What is evident is that there is a judgment against you for the outstanding debt and that the debt was past due.
The judgment and the delinquency will eventually disappear from your credit report after seven years, just like most other negative marks on your credit history. There’s nothing you can do to speed up that process. Whether the judgment is paid or not, it will remain on file for the full seven years and, regrettably, will lower your credit score until it is removed.
IRS Wage Garnishment: How Much Can the IRS Take? What Should You Do?
FAQ
Do wage garnishments go on your credit report?
Does owing money to the IRS affect your credit score?
Can you stop a IRS garnishment once it starts?
Do wage garnishments affect my credit score?
Wage garnishments do not appear on your credit report, and as such, they may only have an indirect impact on your credit score. You can verify this when you look at your credit report and free credit score provided by Experian™ when you enroll in Chase Credit Journey ®.
What happens if a debtor owes a wage garnishment?
A wage garnishment is a relatively common way for creditors to seek the money that debtors owe. ‘Wage garnishments happen all the time,” Sousa says. However, the consequences of wage garnishment can be significant for your disposable income and your credit score. “Wage garnishment from a debtor’s perspective is serious,” Sousa says.
Can a paycheck be garnished if a creditor owes you money?
There are federal and state exemptions that protect some earned wages from garnishment. Wage garnishment happens when a court orders that your employer withhold a specific portion of your paycheck and send it directly to the creditor or person to whom you owe money, until your debt is resolved.
Are wage garnishment judgments a public record?
A few years ago, the credit bureaus recorded wage garnishment judgments in a debtor’s credit report. However, that changed in 2017. The three credit bureaus- Equifax, Experian, and TransUnion- exempted civil judgments and tax liens as public records entered in a credit report.