Liens and levies are debt collection instruments that compel debtors to repay outstanding debt obligations. Both collection instruments offer a means to collect delinquent taxes and grant varying levels of legal rights over personal property to repay the debt. When a lien or levy is used to collect on a debt, the debtor loses control of some or all personal property.
A lien is a claim against property used as collateral to secure a specific debt. If the collateralized property is sold, proceeds from the sale should be applied to the outstanding debt. By way of instance, a mortgage lender extends a loan to your homeowner with the home as collateral. If the homeowner is unable to make mortgage payments, the lending institution may take possession of the home and sell it in the open market in an effort to make up the losses in the failed mortgage loan. Promoting the house requires the vendor to pay off the outstanding mortgage debt .
Consequences of a Lien
When a lending institution files a lien against a borrower, the lending institution has a valid right to claim the property used to guarantee the debt liability. In circumstances where a lien is registered against a productive asset like machines or work vehicles, the debtor has an opportunity to negotiate a treatment to the lien, since the productive asset can generate income to make payments up and continue paying the loan off. In other circumstances, the security is in the possession of the lender until the debt has been paidoff.
A tax lien gives the Internal Revenue Service (IRS) legal promise to use property as security for overdue taxes. A tax lien issued by the IRS attempts to collect delinquent taxes by exposing a lien into a delinquent tax payer’s property. If the property under lien is sold, the IRS is allowed priority among other creditors to receive the proceeds from the selling of property.
A levy grants a legal right to seize property to satisfy outstanding tax obligations. Levies are used to collect outstanding taxes and allow the Internal Revenue Service to carry all of the assets necessary to satisfy the tax debt. According to the IRS, the physical property subject to seizure includes homes, cars and boats. In addition, the IRS can levy investment dividends, financial accounts, professional licenses, rental income and salary.
A tax levy is a more severe step toward tax collection in relation to a lien. The sole notification involved with a tax levy is a written notification expressing the intent of the IRS to issue a levy. The aim to levy notice is the start of the procedure to actually capture property if the taxpayer won’t settle with the IRS or otherwise fails to respond to the notice or appeal that the levy.