If you owe a substantial tax debt, you may feel like you will never be able to financially recover and restore your credit rating. The IRS, however, is willing to work with consumers to help them settle their tax debts and regain financial freedom. In addition, your credit score may not be as damaged as you think.
Time Frame
Unlike other forms of debt, unpaid tax debts do not have a set credit reporting period. If you pay the debt, however, the credit reporting agencies will remove it from your credit record seven years from the date it was paid.
Benefits
You can request that the IRS grant you a settlement, known as an "offer in compromise" for your outstanding debt and pay less than you actually owe. The IRS will use your financial information to decide on a settlement plan to help you pay off your tax debt.
Considerations
You can request a payment plan from the IRS for your debt. This allows you to satisfy your legal payment obligations over time rather than struggling to secure funds to make a lump sum payment.
Misconceptions
A tax debt will not have the same negative effect on your credit report forever. The older the debt, the less the credit bureaus will take it into consideration when calculating your credit score. Thus your credit score can recover, at least partially, even if the tax debt remains on your report.
Warning
If you choose to ignore your tax debt, the IRS can garnish your wages, put a levy on your bank accounts or place a property lien on your home. These consequences are much harder to bounce back from than working to pay off the amount you owe.
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