All of the courts in this district as well as the United States
Supreme Court believe that an amount owed for county real estate taxes
constitutes a bankruptcy claim and therefore, subject to the bankruptcy laws
and to the jurisdiction of the bankruptcy court. As such, the state law rights
of the county can be affected, modified, reduced, or eliminated under the
federal bankruptcy laws. The bankruptcy laws are generally applied in the
broadest sense to try to protect the orderly distribution of the debtor’s
property once a bankruptcy case is filed. In deciding federal bankruptcy law,
the bankruptcy courts, while using state law for guidance on some issues, hold
that federal law supersedes state law.
Unpaid Real Estate Taxes
are a claim in Bankruptcy.
In section 101(5) of the Bankruptcy Code, a
claim is defined as a “right to payment”. The United States Supreme Court, in Johnson
v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 111L.Ed.2d 66 (1991),
decided that the right to payment can be can be solely against the debtor’s
property, even if it can’t be enforced against the debtor personally. So even
though a real estate tax can’t be collected against the debtor personally, the
ability of the county to collect the tax against the real property is
sufficient to bring that amount under the bankruptcy laws. Under the case law
from this district, a real estate tax claim is generally said to be a secured
claim since the county asserts its claim against the debtor’s real estate.
There are limitations what a county can do
after a bankruptcy filing. First, it can no longer assess interest and
penalties as to all outstanding taxes that are due and owing at the time the
bankruptcy case is filed. Second, it cannot conduct a tax sale for any due and
owing taxes as of the filing date.
Sold
Real Estate Taxes.
It is clear that the purchaser of sold real
estate taxes is a creditor in a bankruptcy case and those purchased taxes may
be paid through a Chapter 13 plan. Unfortunately, the bankruptcy judges in this
district have two differing opinions of how the sold real estate taxes may be treated
in a Chapter 13 plan. Some of the judges believe that sold real estate taxes
may be paid through a Chapter 13 plan regardless of the expiration of the state
law redemption date. Those judges believe that the sold real estate taxes may
be paid over the entire life of a Chapter 13 plan and the rights of the
purchaser can be modified just as if the taxes were not sold.
The other judges believe that claims for
sold real estate taxes may be paid through a Chapter 13 plan but only up to the
date of the state law redemption period. Federal bankruptcy law does allow a
sixty day extension of a redemption period that expires during a bankruptcy
case. However, if the real estate tax purchaser fails to object to a proposed
plan that provides for a treatment that has payments in excess of a redemption
date, that purchaser may be bound to that treatment if the plan is confirmed by
the court, regardless if the court may not approved the plan if an objection
was timely brought.
It is our understanding that the redemption of sold sales is
paid to the county for the purchaser, not directly to the purchaser. Therefore,
it is likely that periodic payments through a Chapter 13 plan may be paid to
the county on behalf of the purchaser.
Confirmed
Plan is binding on the County.
Section 1327 of the bankruptcy code states
that upon confirmation, the plan becomes binding upon the debtor, the
creditors, and the trustee. As long as
the County was given proper notice they are bound by the treatment under the
confirmed plan.
Contact information for all
Contact information for all
TOP TEN KEYS TO
DEALING WITH PROPERTY TAXES IN CHAPTER 13.
NDIL Decisions of interest:
In Re Kasco 378 B.R. 207, 211, 212-213 (2007) Tax purchaser is a creditor and its claim may be modified without regard to redemption under state law.
In Re Commings 02 B 42477 Judge Goldgar. Tax purchaser is a creditor and is bound by the terms of the confirmed plan that pays them as a secured creditor.
In Re Barton, 359 B.R. 681 (Bankr. N.D.Ill 2006) Automatic stay applies to a county, specifically in the assessment of interest and scheduling a tax sale. County is bound by the terms of the confirmed plan. County is subject to sanctions under section 362(k).
CDIL Decision of interest:
Salta Group, Inc. v. McKinney, 380 B.R. 515 (C.D.Ill. 2008) Tax purchaser’s claim may be paid over the life of the plan.