Property taxes are generally not dischargeable in bankruptcy. However, homeowners can use the bankruptcy process to help if they fall behind on property taxes to avoid losing a home. Paying property taxes is one of the responsibilities of a homeowner, and failing to do so puts a homeowner at risk of losing a home through the foreclosure process. Chapter 7 bankruptcy provides minimal protection in this instance. However, through Chapter 13, homeowners can include property taxes in the distribution process, buying time to pay back what is owed.
Why Paying Property Taxes Is So Important
Failing to pay property taxes can cause a homeowner to lose the home. When back taxes are owed, the delinquent property taxes, along with the interest and penalties, become a lien on the property. The taxing authority has the right to repossess the home and sell it to satisfy the debt. In addition, if the homeowner has a mortgage on the home, the back property taxes can put the owner in breach of the mortgage contract. As a result, the mortgage provider can repossess the home. Because of this, falling behind on property taxes puts an individual at serious risk of losing a home. This is why many turn to bankruptcy in hopes of finding protection.
Using Bankruptcy to Help with Property Taxes
Property taxes cannot be discharged in Chapter 7 bankruptcy. Filing for Chapter 7 still leaves the individual responsible for all back taxes. However, people may be able to use Chapter 13 bankruptcy to help.
Under Chapter 13 bankruptcy protection, a debtor places all of the existing debts into a payment plan that is controlled by a Trustee. Each month, the debtor pays the Trustee a set amount, and then that amount is distributed to the creditors based on a pre-determined repayment schedule. Debtors can include back property taxes in the distribution process. The goal of this repayment plan is to make it something that fits the individual’s budget to make the debts easier to manage.
This buys the debtor time to repay the property taxes. Once the property taxes are in the Chapter 13 distribution, the debtor receives an automatic stay. This prevents the taxing authority and mortgage provider from performing collection activities.
Even though property taxes are not dischargeable in bankruptcy, help is available. Debtors who have fallen behind do not have to lose their home if they take advantage of Chapter 13 bankruptcy protection. With the help of a Chapter 13 repayment plan, debtors can protect the home and avoid the pitfalls of back property taxes.
Chapter 7 and Property Taxes
Though property taxes are not dischargeable in Chapter 7 bankruptcy, Chapter 7 may be able to help debtors in other ways. By discharging credit card debt and similar debts, debtors may be able to free up enough money in the budget to address back property taxes. This strategy only works if the home is not in danger of foreclosure yet. Bankruptcy attorneys can help debtors weigh their options to deal with back property taxes.