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 is 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.
The 7th Circuit’s LaMont
decision likely eliminates the controversy over treatment of sold taxes in
Chapter 13 Plans.
Key points in LaMont:
1. The tax purchaser's interest is a secured
claim that is modifiable in a debtor's Chapter 13 plan.
2. The bankruptcy code definition of
"claim" is very broad, it is a right to
payment or right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment.
3. The Supreme Court of Illinois has explained,
in the context of Illinois' Uniform Fraudulent Transfer Act,
that a tax purchaser has no direct right to payment from the taxpayer,
but rather the property tax code sets up an indirect right to payment mediated
by the county. The procedure set forth
in the code establishes a debtor / creditor relationship between the county and
the landowner.
Therefore
it is proper to redeem sold taxes by paying the County Clerk through the plan.
Sold taxes may be redeemed by
payment to the County Clerk through a Chapter 13 plan as long as the case is
filed before the end of the state law redemption period.
It is important to give notice to the tax buyer and
include a provision in Section G stating that sold taxes are redeemed by
payments to the County Clerk in Section E 3.1 and that no payment shall be made
to Tax Buyer Inc. related to any claim for sold taxes related to Parcel Number
xx-xx-xxx-xxx.
In Cook and Du Page Counties I believe the County and
their State’s attorney will cling to the paragraph titled "Other
Considerations" in which the court writes:
... if the county clerk is unable to receive installment payments, he
should inform the bankruptcy court, which may adopt another solution...
I don't
think this line is in any way binding, two key words are unable and may. I agree that it is inconvenient for the clerk
to accept installment payments, and I understand that the clerk does not want
to accept installment payments, but bankruptcy is always inconvenient for
creditors, and they never like the treatment the plan gives them. Bankruptcy gives debtors the ability to
modify the treatment of a creditor's claim.
I think
the Court is saying that if the clerk does not like the treatment the plan
provides, then the clerk can object to confirmation of the plan and the
Bankruptcy Court will rule on the objection.
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 and County Clerks including links to web sites with tax payment
status can be found at County
Treasurers and Clerks .
TOP TEN KEYS TO DEALING WITH
PROPERTY TAXES IN CHAPTER 13.
NDIL Decisions of interest regarding
property taxes:
Lyubomir Alexandrow v. Todd LaMont,
et al; 7th Circuit Court of
Appeals 13-1187, decided January 7, 2014. Sold taxes may
be redeemed by payment to the appropriate taxing authority through the Chapter
13 plan.
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 regarding
property taxes:
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.