Chapter 7 and Chapter 13–Resolving Your Property Tax Debt
Oct. 19, 2015
Bankruptcy helps with your property taxes either by writing off your other debts or by buying you more time to catch up.
Discharge Your Other Debts with Chapter 7 So You Can Pay Your Property Taxes
If you’ve fallen behind on your property taxes, presumably your income has not been enough to meet your expenses plus payments on your other debts. Sometimes just writing off your other debts would give you enough financial breathing space so that you can catch up on your property taxes.
Find out from your attorney how much time you would have to catch up on your property taxes. You often have quite a long time. But the rules can be very strict about property tax foreclosures, so be absolutely clear about what the true deadlines are.
Some tax agencies will set up a monthly payment plan with you. Find out if that would be available to you and if you could afford the payments once you discharged your other debts.
In these situations a Chapter 7 “straight bankruptcy” may give you all the help you need.
Use the Special Powers of Chapter 13 to Take Care of Property Taxes
But you may not have enough time to pay the taxes before the tax foreclosure.
Or even if the tax foreclosure isn’t right around the corner, you may need more help for the following reasons:
Even if your county or tax agency provides the option of an installment payment plan, you can’t afford the monthly payments even after discharging your other debts.
A payment plan is not offered by your tax agency.
The collection process has gone too far for you to be eligible for a payment plan.
You were already in a payment plan but could not pay it as agreed.
Your mortgage lender is requiring you to bring the taxes current more quickly, usually on top of initiating its own foreclosure or threatening to do so.
Under the Chapter 13 “adjustment of debts” type of bankruptcy, you can catch-up on your property taxes over a period of as long as 5 years. This reduces each month’s installment payment, making it more manageable. And during that time the tax agency would not be able to foreclose or take any other collection activity—saving you both worry and those extra costs—as long as you fulfill the terms of the court-approved Chapter 13 plan.
Chapter 13 also often can enable you to pay your back property taxes more quickly than if you were in a Chapter 7 case, saving you interest and penalties. This is possible because your plan can delay paying other important creditors, such as the IRS or a spousal support enforcement agency, while you first catch up on the property taxes.
And perhaps of greatest practical importance, Chapter 13 is usually a much better option if you are also behind on your mortgage payments. Most of the time if you are behind on property taxes that means that you are also behind on your mortgage(s). Chapter 13 can be an excellent way to catch up on your mortgage because it also allows you to stretch out your mortgage catch-up payments for up to 5 years. During this time, as long as you meet the terms of your court-approved plan, you and your home will be protected from foreclosure or any other collection efforts by your mortgage company.