Property Taxes and Bankruptcy

If your home is owned outright, or you do not have an escrow account set up through your mortgage payment, you will be responsible for paying your yearly property taxes. It will be important to keep your property taxes current, as failing to pay them can lead to a lien being placed on your home.

Property taxes are secured by your home and therefore are not outright dischargeable in bankruptcy. In Chapter 7 bankruptcy, your property taxes will remain a lien on your home even if you have other debts discharged in the bankruptcy, such as credit cards and medical bills.

In Chapter 13 bankruptcy, your property taxes will need to be paid in full over the course of the Chapter 13 plan. These taxes are generally paid with interest, normally at about 10%. So, if you owe $10,000 in property taxes in the chapter 13 bankruptcy, you will need to re-pay that amount plus interest over the three to five-year plan. It will also be important to pay the yearly property taxes as they come due during the bankruptcy plan. Otherwise, you may still owe on property taxes even when you come out of a bankruptcy designed to pay off the old property taxes.

Your property taxes are not a debt that you should ignore for long. Some tax collection agencies and municipalities are aggressive about collecting, and as home values go up more and more, they have more equity in your home to go after. Unfortunately, property tax liens do not go away, and they can accumulate significant interest and penalties. These liens will remain even if you attempt to sell the house or leave it to someone in your estate after death. If you want to be able to sell or giveaway your home free and clear, you will need to make sure all property tax are current.

Contact us to set up a free consultation if you find yourself unable to catch up on your property taxes or if a tax lien has already been placed on your home. Chapter 13 bankruptcy could buy you three to five years to catch up and can stop a sheriff sale at any point before it occurs. Call us at 412-414-9366 to discuss your situation.

Property Taxes and Bankruptcy

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.

Property Taxes and Bankruptcy

Property taxes and municipal fees can accumulate rapidly in a few years when a homeowner falls behind. Between the taxes, the interest, and attorney fees, the amount can quickly become unmanageable. Fortunately, Chapter 13 Bankruptcy provides an opportunity to square up with these debts over a 3-to-5 year Chapter 13 Plan.

Not paying property taxes is a serious matter. Municipalities and taxing agencies can, and will, get judgments against the homeowner and the property. Once these court judgments have been obtained, the taxing agency is within their rights to sheriff sale the property out from under you to pay the debt. You can absolutely lose your home over property taxes, and I have seen many clients in this danger. This takes many people by surprise, but it is a real possibility.

Chapter 13 bankruptcy can stop these lawsuits in their tracks, and even stop a sheriff sale. The Bankruptcy "automatic stay" under the Bankruptcy Code effectively stops any lawsuit related to property taxes from proceeding. However, the taxing agency will only be permanently stopped from collecting against your home if they are paid in full, with interest, in the Chapter 13 Plan. (If your Chapter 13 plan fails, they can reinstate the lawsuit).

Once again, paying these property taxes through Chapter 13 bankruptcy can occur over a 3-to-5 year period, during which you will receive Court protection from any property tax lawsuits or collections. This is a major advantage, as you are not required to provide all of the money at once. This is often the only way a debtor would be able to keep their property while facing large property tax obligations.

Interest must also be paid to the taxing agencies. This rate ranges from 10% for many local municipalities, to 12% for Allegheny County (NOTE: rates can vary by county and municipality). The ability to spread out payments over the Chapter 13 bankruptcy plan can certainly make re-payment possible.

Finally, it should be noted that Chapter 13 bankruptcy filers will need to keep their ongoing property taxes current. If current taxes are not paid while catching up property taxes in arrears, the debtor will be left in the same position as before filing.

If you are having difficulty catching up on property taxes, contact us to speak with an experienced Pittsburgh Chapter 13 bankruptcy attorney. The initial consultation is always free, and I will be happy to speak with you at length to determine if Chapter 13 bankruptcy is an option.