If you have heard of liens, levies and garnishments, you might feel like you’re stuck in a complicated mess. After all, the tax code is complicated and dealings with the IRS can seem even more so.
It is important to understand what these mean, though, and to know how to avoid them. After all, any of these signal financial trouble, which is why you should be aware of what they are.
Liens
When you owe money to the government, they can place a lien on something you own, like a house or car. It is sort of like a slap on the wrist, but also a reminder to pay what you owe or at least make arrangements with the IRS to resolve the tax matter you have pending.
Levies
If you ignore the government’s attempts to collect their money, they might hit you with a levy. This means they can take your property, including your bank account or wages, to settle your debt.
To dodge levies, stay in touch with anyone you owe money to and work out a plan with them if you are struggling.
Wage garnishments
A wage garnishment is simply having a piece of your paycheck taken before it gets to you. Any party needs a court order to do this.
A court can order your employer to take a chunk of your paycheck until the debt is paid off. To prevent this, keep an eye on your debts before they get out of hand. Deal with your creditors and work something out.
Avoiding financial pitfalls
There are several ways to avoid getting in any of these situations. Staying on top of your debt is the most important one because you are responsible for what you borrow and you made a promise to pay it back.
In addition, to avoid financial messes like the ones above, you can:
- Stay organized and keep your financial information up to date.
- Communicate with anyone you owe money to.
- Budget and spend money wisely.
- Seek help from a financial advisor or credit counselor.
- Understand your rights.
Even when dealing with creditors or the IRS, you still have rights. They may not tell you what those rights are (especially private creditors) but you can seek advice from an attorney who understands how these processes work, how to sort out the problem and solve it once and for all.
By taking proactive steps to avoid getting into financial problems, you are thinking clearly about your future. Borrowing money is serious business. Only borrow when you know you will be able to pay back and make sure you budget accordingly if you know you will owe taxes by the time April rolls around.