Being behind on property taxes is usually a breach of your mortgage. Chapter 13 protects you from your mortgage lender so you can catch up.
Property Tax Foreclosure Is Not Usually the More Pressing Concern
If you have fallen a year behind on your property taxes, you likely have quite a bit of time before you would lose the property to a property tax foreclosure. If the documents you received don’t make perfectly clear how long you have, be sure to find out from an attorney.
But assuming you have a mortgage, almost always your bigger and more immediate problem is how your mortgage lender will react to you falling behind on your property taxes. That’s because almost always not being current on your home property taxes is a violation of the terms of your mortgage, giving your mortgage lender those independent grounds for it to foreclose on your home. A mortgage lender’s foreclosure would likely happen long before a foreclosure by the county (or whoever you owe on the property taxes.)
Why Your Mortgage Lender Has Good Reason for Being Concerned
In fact, you are probably already hearing from your mortgage lender about your property tax problem. Your lender has reason for being concerned. Your property tax creditor is ahead of, or superior to, your mortgage lender on your home’s title. So if the property taxes were indeed foreclosed on, your mortgage lender would have the property foreclosed out from under it as well. That would leave your lender without any collateral protecting its mortgage debt.
In practice, that would almost never happen. Your mortgage lender knows when your property taxes aren’t being paid, whether you are set up to pay them through the escrow portion of your monthly payment to the mortgage lender or whether you pay the taxes directly. When your lender finds out that you haven’t paid your property taxes, it will almost always pay the taxes out of its own money—adding that amount to what you owe it—to prevent a property tax foreclosure. That of course puts you that much further behind with your mortgage lender.
The Limitations of Chapter 7 “Straight Bankruptcy”
A Chapter 7 case will usually write off (“discharge”) most or sometimes even all of your debts not secured by your home. If that frees up enough of your income so that you can quickly catch up on your property taxes, then Chapter 7 would be a good solution for you.
The problem is that if you’re behind on property taxes, you’re also very likely behind on your mortgage. And if your mortgage lender has paid the back property taxes when you didn’t, then you’re even further behind with your mortgage lender. So catching up within the time frame that your lender will want to be caught up becomes less likely.
Chapter 7 protects you for only three or four months from creditors on debts that aren’t discharged in the case. So after that you are largely at the mercy of your lender as to how much time you will have to catch up on the property taxes and on any mortgage arrearage. Have your attorney tell you from his or her prior experience with your lender generally how long that might be. Plus he or she will likely need to contact your lender to find how much time it will give you in your own situation.
Using Chapter 13 “Adjustment of Debts” to Catch up on Home Property Taxes
A Chapter 13 case is quite different. In contrast to Chapter 7, a Chapter 13 case takes three to five years. And the protection from creditors—and from tax and mortgage foreclosures—generally lasts the length of the case (as long as you do what the Chapter 13 payment plan says you’ll do, including keeping current on ONGOING property tax and mortgage payments).
In a Chapter 13 payment plan, most of your debts are paid through a single monthly payment you make to the Chapter 13 trustee, who then distributes them to your creditors, including the property tax creditor. You usually have the length of your case to catch up on the property taxes, although your plan will likely try to take care of it faster because you will have to pay a relatively high statutory interest rate (vs. not having to pay interest to many other creditors).
Using Chapter 13 to Catch up on Your Mortgage
If you are also behind on your mortgage payments, the same situation applies: you are conditionally protected from your mortgage lender during the three-to-five-year Chapter 13 case, and you have that length of time to catch up on the back payments.
While you are in the midst of the case and in the process of catching up on the property taxes and the mortgage, your mortgage lender cannot foreclose in the basis that you being behind on those obligations.
At the End of a Chapter 13 Case
If things go as they should, at the completion of your Chapter 13 case you will be current on your home property taxes and on your mortgage(s), and you will owe little or no other debts.