Property Tax Foreclosure Bankruptcy solutions
If you need to stop a Property Tax foreclosure Bankruptcy may be your best option. When you don’t pay property taxes you can go into foreclosure from investors who purchase the property taxes and then foreclose. Often debt collection attorneys will purchase tax liens by setting up a company that purchases the property tax lien. Then they charge 250 per hour for attorney fees or more when the company forecloses. In effect they buy the tax debt, earn 12% interest plus thousands more in attorney fees when they file the foreclosure
If you fall behind in the insurance or property taxes the lender will often pay this for you. However, the forced placed insurance will be at a higher rate than you may have normally paid. With the mortgage company being behind in the taxes or insurance may also place you in default or foreclosure from the mortgage company as well. It is often a part of the contract or note that not paying the insurance or taxes is a default condition. Even if you are current on the mortgage payments the mortgage company can foreclose.
The county itself can foreclose for tax debt but it normally takes years before enough taxes pile up for the county to foreclose. Instead these debts are normally bought up by investors and the mortgage company because they can make money from it.
How to solve this problem Chapter 7 or 13
Your budget has to include property taxes and insurance for you home. If you forget to budget for this you have to fix the problem. If you simply need to get rid of some small debts which are preventing you from paying the debt on time perhaps a Chapter 7 can free up enough cash so you can pay off this debt. By freeing up some immediate cash flow you can apply the money to the property taxes and pay it off. Sometimes a simple Chapter 7 is enough. But remember in a Chapter 7 you are limited in the amount of equity you can keep in a home. A Chapter 7 also avoids a tax and a deficiency debt.
When you are facing an immediate property tax foreclosure bankruptcy may be your only option. A Chapter 13 may be required to stop the sale and give you up to five years to pay off the taxes. A Chapter 7 will at least delay it for about 4-6 months. The payments may be very low but your budget must include paying these taxes or you will eventually go back into foreclosure for the same reason. Paying back these taxes requires that you pay their interest during what is often a 5 year repayment plan. A Chapter 13 gives you time but not if you return to not paying the property taxes.
Property Taxes are statutory taxes
Because property taxes are statutory taxes you can’t bankrupt the tax. You can only repay these debts whether they are owned by the county, mortgage company or an investor. Property tax liens attach to the home or real property just like a super first mortgage which must be paid even before the first mortgage is paid. It places the mortgage company at risk if these taxes pile up. These taxes are also paid before judgment liens are repaid
Property tax liens cannot be avoided or stripped in bankruptcy court. They can only be repaid. But you can repay them over time and other debts may be paid far less. For instance if you have property taxes, a first mortgage and a second mortgage the property taxes may eat away equity.
Only a residential first mortgage is protected in bankruptcy form being stripped or modified. A rental or vacation home can have a first mortgage modified if it is not fully secured. A second mortgage can be stripped on any property if it has no equity. When you combine the long time a Chapter 13 gives you to repay the property tax liens with the ability to eliminate other debts and sometimes to strip a mortgage a Chapter 13 becomes a powerful tool to cure property tax foreclosures.
You never lose a home in a Chapter 13 to the Trustee
One of the nice things about a Chapter 13 is how you never lose property to the court or a trustee. In a Chapter 13 people may not make the home mortgage payments or plan payments and have a home go back to foreclosure. But they don’t lose a home just because they had too much equity. Even if you own a 200,000 dollar home free and clear being in the Chapter 13 is voluntary and property is not taken away. Instead the problems which arise is other debts may also have to be repaid in a Chapter 13 such as priority debts. This is often taxes less than 3 years old. Or other secured claims may have to be repaid. The payments may be high if you have other debts. The plan may not be affordable if you have other debts or too much equity. But you are never forced to lose property in a Chapter 13.
And you tend not to fall behind again in property taxes. The mortgage company is prevented from foreclosing. Plus an experienced attorney will put together a budget designed to include future property taxes. Even if there are unexpected changes you can modify the plan. The goal of the plan is to always eliminate the unsecured debt and at the end of the plan you have caught up all of the secured debt. Including the property taxes.