1. What is a bankruptcy discharge?
It releases you from personal liability for discharged debts. Thus, it prevents the creditors owed those debts from taking any action against you to collect the debts. Most, but not all, types of debts are discharged if they existed on the date the bankruptcy case was filed and were listed on the schedules. Bankruptcy law regarding the scope of a discharge is complex, and you should consult competent legal counsel prior to filing.
2. Does a discharge in bankruptcy discharge my real estate or tangible personal property taxes?
No. Your bankruptcy is personal to you while the lien for real property and tangible personal property taxes is a “first and superior lien” on the property assessed (a secured debt collateralized by property). If your homestead under the bankruptcy code is claimed as exempt then you will still be responsible for the taxes plus accrued interest and if the property becomes part of the bankruptcy estate then the Tax Collector will look to the Trustee or the debtor’s plan for payment of taxes. If the Trustee abandons the property then the Tax Collector will look to the property itself to satisfy the outstanding taxes in accordance with state statutes.
3. Can my homestead be sold for back taxes while my bankruptcy case is pending?
No. The automatic stay provisions of the bankruptcy code prevent any actions to collect taxes during the bankruptcy proceedings. However interest on the unpaid taxes will continue to accrue during the bankruptcy proceedings. Once a discharge is entered on real property claimed as homestead the taxes will become due and payable and state law applies.
4. My Chapter 13 plan is supposed to cover my taxes. How is the Tax Collector paid?
The Court Order confirming your Chapter 13 plan will indicate if the Tax Collector is to be paid for outstanding real or tangible personal property taxes. If the Tax Collector’s claim is covered by your confirmation order then the Tax Collector should be receiving payment from the Chapter 13 Trustee in accordance with the court order. You should check with your bankruptcy attorney to ascertain whether real and/or tangible personal property taxes are covered by your Chapter 13 plan.
5. Does filing of a bankruptcy petition stop a tax deed auction that has been scheduled for delinquent real property taxes?
Yes, if the Tax Collector’s office has been noticed by the court, your attorney or yourself with the bankruptcy case number. The filing of a bankruptcy petition invokes the automatic stay prescribed by the bankruptcy code and no collection or enforcement efforts can continue from the time of filing until the automatic stay is lifted or discharge or dismissal of the bankruptcy proceedings.