Property taxes are a frequent problem I hear from individuals who are considering bankruptcy.
If your property taxes are paid through an escrow account, you will likely be in arrears if you’re behind on your mortgage payment. If you have no mortgage payment, it is likely that you are responsible for paying your property taxes directly. Either way, it is important to make sure you do not fall behind, as this can lead to penalties, fees, or even foreclosure of your home.
Property taxes can be included in a bankruptcy filing, but they normally need to be paid in order for you to receive a discharge at the end. While property taxes are not dischargeable in Chapter 7 bankruptcy, they can be listed and used to reduce the equity you have in your home (search elsewhere in this blog for a discussion of “equity” and how you determine it). This can be useful if you may have too much equity and otherwise would not be able to protect it all in Chapter 7 bankruptcy.
However, if you file Chapter 7 bankruptcy when you owe property taxes, those property taxes will not be discharged or eliminated. In a Chapter 13 bankruptcy, property taxes can be included and paid over the course of the Chapter 13 bankruptcy plan. This means you can spread out the balance owed over a five-year period, if necessary. A good thing about paying property taxes through a bankruptcy is that you can limit any additional fees and penalties, though you will be responsible for paying interest. This may make it much easier to pay your balance, as property taxes may be due in full if you were behind for several years. This can lead to a sheriff sale on your property.
It should be noted that it is important to continue paying your property taxes while you are in Chapter 13 bankruptcy. If you don’t, by the end of the plan you may be caught up with older property taxes, but will owe all of the property taxes that came due over the course of the plan. This may require a second Chapter 13 bankruptcy filing, which you would ideally want to avoid.
If you are in arrears on your property taxes, call us for a free consultation at 412-414-9366. I would be happy to discuss your situation and help you determine the best plan going forward to fix the problem.