Glenn Stearns, Chapter 13 Trustee

TREATMENT OF REAL ESTATE TAXES IN A CHAPTER 13 PLAN

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 Collar County Treasurers, including links to web sites with tax payment status.

Contact information for all Collar County Clerks.

TOP TEN KEYS TO DEALING WITH PROPERTY TAXES IN CHAPTER 13.

The Treasurer’s office deals with property taxes until they have been sold. After the sale date the Clerk’s office is responsible.

Always ask the debtor if there is an escrow for property taxes.

Always assume the taxes are in default if there is no escrow and give notice to the County Treasurer on Schedule D if there is no escrow. The taxes won’t be sold if the county has notice.

Always give notice to both the Treasurer and the Clerk on Schedule D if there are sold taxes.

Check the status your self if there is no escrow. It takes one minute via internet or phone.

Specify the tax year and the PIN on Schedule D and in the Plan.

Delinquent taxes must be provided for in the Plan. If the taxes are to be paid through the plan, do so in Section E 3, be sure to reference the tax year and the PIN. If direct by the debtor do so in both Plan section G and Schedule J.

Whether the taxes are paid through Plan Section E 3 or G, give them a high fixed payment and get them paid as soon as practical.

If the plan provides for payment of taxes that have been sold as well as taxes that have not been sold, provide for them as separate entries in Plan section E 3.

If you don’t have a tax bill you can find the PIN on Zillow. After you enter the address and find the “Zestimate” click on “See home info” in the small box with the value, then click on “home info”; the PIN is at the bottom of that page as “parcel number”.

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.