Will Bankruptcy Wipe Away My Unpaid Property Taxes?
The following is presented for informational purposes only and is not intended as legal advice. Consult with a qualified lawyer for advice specific to your situation.
Personal bankruptcy is a powerful tool that can serve as a hard reset for folks in a difficult financial situation. If you're overwhelmed with debts and expenses and can't find another way to find your way out, bankruptcy can make a lot of sense. And while bankruptcy can clear away a lot of different kinds of debts, it can't be used to free yourself from every type of financial commitment.
So what about unpaid property tax? Old unpaid property tax may have you worried about losing your home, and if the bill is high enough you may think that bankruptcy is the only way out. But can you even discharge property tax debt through personal bankruptcy? It's complicated. Here's what you need to know.
You can usually include property tax debt in a Chapter 13 repayment plan
Personal bankruptcy comes in two primarily flavors: Chapter 7 and Chapter 13. You'll want to work with a bankruptcy attorney to determine which is the best fit for you, but basically Chapter 7 typically involves liquidating your non-exempt assets and using the funds to partially repay your creditors. Chapter 13 lets you keep your assets by creating a 3 to 5 year repayment plan.
Chapter 13 is often called a "wage earner's plan" because participants have at least enough income to handle some amount of a monthly payment. Ultimately, you're likely to end up repaying your property tax in full, but the repayment plan will designed to fits your means.
In other words, in a Chapter 13 bankruptcy your unpaid property taxes may be included, but they aren't likely to be "wiped away". You'll be paying most, if not all, of what you owe.
You may be able to include property tax in a Chapter 7 bankruptcy discharge, but there are limitations
Chapter 7 is the type we generally think of when we talk about filing bankruptcy. There's no repayment plan. You may lose some valuable property in the process, but in the end all eligible debts are discharged and you're no longer responsible for them.
What about property taxes? Well, first and foremost, property taxes that were assessed within the year prior to filing for bankruptcy cannot be discharged in a Chapter 7 bankruptcy. Property taxes that were assessed more than one year prior to filing may be included, but this depends heavily on the jurisdiction where you're filing for bankruptcy and your personal circumstances.
So it's a good idea to avoid making assumptions about what will or won't be discharged in your bankruptcy. This is another reason why working with a professional is in your best interests.
Once property tax becomes a lien it cannot be discharged in a bankruptcy
Tax liens, on the other hand, can never be discharged through bankruptcy. So if your unpaid property taxes have been converted into a tax lien that will stay in place no matter what, until you sell your house and use the proceeds to pay the liens.
Another important exception? Any tax debts that were incurred through fraud or willful evasion.
Out of control property tax bill impacting the rest of your budget? If you're unsure how best to handle your debts, including credit card debts, MMI offers free financial counseling 24/7, online and over the phone. Get the help, answers, and support you deserve.
