The NJ Division of Taxation can issue a Certificate of Debt when you’re behind on your tax obligations. This can lead to seizure of funds in your bank account and blocking the sale or refinancing of your home. If you miss the state’s notices, you may not know you have a tax lien or judgment against you until you are denied credit or try to sell your home.
By understanding how New Jersey tax liens and judgments work and how to avoid them, you’ll be able to save money and get back on track financially. If you are facing tax liens or judgments, a tax lawyer can help you resolve them in the most efficient way possible for your needs – to get guidance, contact us at Paladini Law today.
Key takeaways:
- The NJ Division of Taxation issues a Certificate of Debt when you are behind on your taxes.
- NJ Certificates of Debt function like tax liens – they are public records and can limit your ability to sell your home or refinance.
- There are multiple ways to resolve a tax lien – including paying or settling the tax due.
- Working with a tax attorney reduces the risk of these aggressive tax collection strategies and provides you with an advocate in getting through these challenges.
What Is a Certificate of Debt in New Jersey?
A Certificate of Debt (COD) is a legal judgment issued for unpaid taxes filed with the Clerk of the New Jersey Superior Court. Once filed, it acts as a tax lien, meaning it creates a legal claim to your assets for the unpaid tax liability. The lien acts as a type of protection for the state, making it impossible for you to sell or distribute assets.
What makes a COD even more challenging is that the NJ Division of Taxation can file this claim without you going to court. Once they do, it is a matter of public record and remains in place until you pay or settle the tax liability. In contrast, most private creditors must take you to court – that’s one of the big differences between owing money to a private creditor (for example, a bank) and the government.
How NJ Tax Liens and Judgments Affect You
Once a NJ tax lien or judgment is in place, it may go unnoticed for some time. That is, until you apply for a job or try to get a loan. Because the COD is public record, anyone interested in learning about your financial situation can find the lien, and that means it could impact you in several ways:
- Background checks: The tax lien will appear when a potential employer, investor, or other party pulls a background check on you.
- Home titles: The tax lien attaches to all your assets, including your home. That means you cannot sell your home or refinance the loan until tax liability is settled.
- Bank levies: A COD gives the state the legal right to issue a bank levy to seize funds.
- Wage garnishments: It also enables the agency to garnish wages.
- Asset seizure: The state may also seize assets if it cannot recoup what it’s owed with bank levies or wage garnishments.
The longer the debt exists, the more limited your financial future is. More so, the debt continues to grow with interest and penalties tacked on. That makes it even more challenging to get out of the situation.
How Bank Levies Work
A New Jersey bank levy provides the state with access to the funds in your bank account. That can be a terrifying thought, but the state may take action to seize funds.
After a COD has been issued, if you don’t pay your debt, the state may move forward with more aggressive action, like levying your bank account. The Division must notify you before initiating the bank levy. Once they’ve met the notice requirements, they’ll notify the bank, and at that point, the bank must freeze all of the funds in your account up to the amount owed on your taxes.
If you have pre-authorized transactions or outstanding checks, they will not go through unless you deposit more money. Luckily, the levy only affects the funds in your account on the day of the levy. To get additional funds, the state must initiate another bank levy. To avoid this, you should deal with your tax debt as soon as possible – especially if the state has already filed a tax lien.
Wage Garnishments in New Jersey
Alternatively or in addition to a bank levy, the state may also use wage garnishments to collect unpaid taxes. Unlike bank levies, wage garnishments aren’t a one-time event. They attach to your wages permanently until the Division lifts the garnishment or you pay off the taxes.
You’ll also get advance warning about this – if you don’t respond or take action, the Division will send a garnishment notice to your employer. Then, your employer must take part of your pay and send it to the state to cover your tax bill. Although you cannot be fired for one garnishment, it can be professionally embarrassing and financially harmful.
What Is the Judgment Payoff Request Form?
To remove a COD, you must pay what you owe in full. To do that, you need to use a judgment payoff request form to figure out exactly how much you’ll owe on the anticipated payoff date.
This form is a simple document that requires you to provide some basic information about who you are and what you owe. You’ll need to provide a reason for the request. Then, email it to: [email protected] or mail it to NJ Division of Taxation, Judgment Section, PO Box 245, Trenton, NJ 08695-0245.
Your payment will include what you owe in back taxes, as well as fines, interest, and penalties applied to your account. Once you submit this payment, the state issues a Warrant for Satisfaction. This action notifies that the lien should be released. But if you can’t pay in full, there are other ways to deal with a New Jersey tax lien.
Subordination May Be an Option
In some situations, you may be able to apply for a subordination if you cannot pay what you owe in full. Subordination allows another creditor to have the first right to the asset.
For example, if you want to tap into the equity in your home to pay off your tax debt, subordination may make that possible. If the state agrees to subordinate its lien to the mortgage equity lender, that gives the lender more confidence in you and improves your chances of getting approved.
Why? Because if you default on the loan and NJ’s lien is in first place, the Department of Taxation will have first “dibs” on the collateral. However, if you default on the loan, and the lender has priority, the lender will be able to seize the collateral. Then, the state will be in line next for any remaining value.
Typically, the Department of Taxation will only agree to subordination if you are using the funds from the loan to repay your tax debt.
Resolution Options for New Jersey Tax Liens
Let’s look at the options you have to resolve a New Jersey tax lien. To identify the best option for your situation, consider reaching out to a tax professional today.
1. Pay off the tax debt.
Use the payoff form to request the total owed. Get verified funds (for example, a cashier’s check), send it, and the tax lien and judgment are removed. If you don’t have the funds to pay in full and you want to take out a loan, consider looking into subordination. If you’re selling an asset to pay off the tax debt, you may need to ask the state to discharge the lien from the asset – that removes the lien from a particular asset but keeps the lien intact.
2. Set up an installment agreement
Most of the time, you’ll receive numerous notices of delinquent taxes. At any time, you may be able to set up payment plans with the state. They will often work with you to create a payment plan to pay off your debt. Setting up a payment plan will not necessarily convince the state to remove the Certificate of Debt, but it will prevent the state from moving forward with seizure actions.
3. Request penalty abatement
A penalty abatement is not given out to anyone. You must document why you failed to pay your taxes when due. If you can provide a justified reason, the state may offer to reduce the penalties that are built up on this debt. The agency may be able to waive:
- Late filing penalties if you were previously compliant on payments
- Late payment penalties for missing payments by the due date if you have undue hardship
The state cannot remove interest charges, collection fees, or post-amnesty penalties. An abatement can only be obtained once per penalty that has been assessed. You can download an abatement request form and submit it for consideration.
4. Apply for an Offer in Compromise
In NJ, an offer in compromise, also known as a closing agreement, is another route. You must be able to show economic distress and supply the necessary financial documents to demonstrate this. That includes your income, expenses, assets, and liabilities.
The state is not likely to eliminate your tax obligation, but it may agree to accept a lower payment if you make a one-time payment. The state will release the COD if you get approved for a settlement.
Work with a Tax Attorney
This is often the critical decision for most people. A tax attorney will review your judgment, seek any solutions applicable to you, and present you with options. There is no fear in asking an attorney to help you, unlike seeking help from tax collectors.
Don’t Wait to Take Action
No matter which step you take, do not wait. The longer you hold off making a decision, the higher the costs rise and the less likely the state will be to agree to terms that fit your needs. You may also face bank levies or wage garnishments if you don’t pay. To protect yourself and your assets, make arrangements on your tax debt as soon as possible.
Getting Help Is Critical and Accessible
Turn to Paladini Law for fast, reliable support. We work with individuals and businesses who need to resolve tax issues in an effective manner. You can avoid aggressive collections by having a team of professionals to guide you.
If you received a COD or NJ tax judgment, contact us now. We can help you quickly.
FAQs
What is a tax judgment in New Jersey?
A tax judgment is a court order that allows the NJ Division of Taxation to seize assets due to tax obligations you have not paid. When a Certificate of Debt (COD) is filed with the New Jersey Superior Court, it has the same force as an adjudicated judgment.
What happens if I ignore a NJ COD?
If you ignore a tax lien, the aggressive collection efforts may move forward. That means the state will seize funds from your account and apply a tax lien on all property.
Can a tax attorney help remove a NJ tax judgment?
Yes, a tax attorney can help you determine what you owe, what options are available for getting caught up, how to reduce what you owe, potentially, and how to release all liens and judgments against you.
