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Archive for the ‘Taxes’ Category

Buy Time to Get Current on Home Property Taxes

October 23rd, 2017 at 7:00 am

Falling behind on home’s property taxes creates a special problem. The tax collector will likely be much less pushy than your mortgage lender. 

Falling Behind on Property Taxes

If you have a mortgage on your home you can fall behind on your property taxes two ways.

First, most likely you’re paying your taxes as a portion of what you send monthly to your mortgage lender. When you don’t pay your monthly payment to your lender, you fall behind on both the mortgage and your taxes.

Second, if you’re paying your taxes directly to the county or other tax agency, you fall behind by not paying when it’s due.

The Consequences, Short Term and Long Term

Not paying your property tax results in losing your home through a property tax foreclosure.  But in most parts of the country that doesn’t happen for a number of years past the due date. For quite a while you’ll likely just get occasional notices from the county/tax agency reminding you that you’re late.

It’s not the county/tax agency who’s likely to be making the most noise when you don’t pay your property taxes. It’s your mortgage lender.

Why Your Mortgage Lender Gets Upset

With virtually all mortgage contracts, falling behind on property taxes puts you in default on the mortgage itself. That means that even if you are current on the mortgage payments your lender could foreclose on your home just because you’re behind on the taxes.

The reason for this is that you owing back property taxes is quite dangerous for your lender. If the county/tax agency would foreclose on your home your lender (and other lienholders) would lose its legal rights to your home.  That would leave the lender without any collateral at all on your mortgage loan. It risks getting paid nothing on the loan.

Even if a tax foreclosure would not happen for a few years, not paying property taxes is seen as an indication that you can’t afford the home.  It’s a big warning sign for the lender

To prevent a tax foreclosure from happening your lender will almost certainly pay your past-due property taxes. The mortgage contract allows it to do so. As you can imagine it doesn’t like to put out money like this. So it then aggressively comes after you to pay it back, and quickly. If you don’t pay, your lender will likely start a home foreclosure. That’s especially true if you’ve also fallen behind on your mortgage payments.

If You Can Fix This Fast

If you can catch up quickly on the property taxes you may not need bankruptcy help. But presumably you fell behind because of some serious financial challenges.

Filing a Chapter 7 “straight bankruptcy” case can sometimes provide enough help. But that’s only if your bankruptcy filing improves your cash flow so much that you’d have enough extra money to catch up on the property taxes fast enough to satisfy your lender.

As you work with your bankruptcy lawyer on your budget, he or she will discuss this with you. It’ll likely be a key part of your conversation about whether to file a Chapter 7 or Chapter 13 case.

With Chapter 13 You Buy Lots of Time

If you can’t catch up fast enough to satisfy your mortgage lender, filing a Chapter 13 “adjustment of debts” case requires it to give you more time. In most cases you’d have between 3 and 5 years to catch up on the property taxes.

The first big benefit to you is that this long period of time reduces the monthly catch-up payment amount. Catching up becomes more affordable, making it more likely.

Another benefit is that you’re protected from your lender during this catch-up time. It can’t enforce its requirement that you be current on property taxes. As long as you keep your commitments under the Chapter 13 plan it won’t get permission to take any action against you or your home. The lender is protected because the county/tax agency is itself is prevented from taking any action. It can’t do a tax foreclosure, which benefits both you and your lender.

The third benefit of Chapter 13 is that it solves your property tax problem long term. You won’t fall behind again because your formal budget includes that expense. Plus you’re required to keep current as a condition of your payment plan. Your lender would likely be able to get permission to start a foreclosure if you don’t pay ongoing tax payments. But again, there should be room in your budget to keep current on these.

Then at the end of your Chapter 13 case you would be current on the property taxes. You’d have paid off the original unpaid tax and any accrued interest. Plus you’d have kept current on each new year of taxes because it’ll be in your realistic budget.  Your property tax problem will be resolved.


Catching up on Property Taxes on Other Than Your Home

August 14th, 2017 at 7:00 am

If behind on property taxes on property that isn’t your home, either Chapter 7 or Chapter 13 may buy you the time to save this property. 


For most people who are behind on property taxes on their real estate, that real estate is their home. And they have a mortgage on that real estate. See our last blog post about catching up on your property taxes on your mortgaged home.

But you may own real estate that isn’t your home, on which you are behind on property taxes. This comes up in a number of scenarios. Today we’ll look at mortgaged investment property on which you’ve fallen behind on property taxes.

First Problem—The Unhappy Mortgage Lender

Again, see our last blog post about why mortgage lenders get very concerned when borrowers fall behind on property taxes. What we said there about mortgaged homes applies as well to investment and other types of real estate.

Briefly, being behind on property taxes is virtually always a breach of your agreement with the mortgage lender. That’s because the property tax is “senior” to the mortgage, meaning a property tax foreclosure would wipe out the mortgage lender’s lien on the property. That’s very dangerous for the lender, so it acts aggressively to get you current on the taxes. This may include the lender paying the tax and then coming after you to pay it back. And if you don’t the lender can start its own foreclosure, even if you’re current on the mortgage itself.

Bankruptcy can solve this problem, one of two ways. A Chapter 7 case “discharges” your other debts so that you can afford to bring your property tax current. And if that doesn’t happen fast enough, a Chapter 13 case buys you more time, up to 5 years. Your court-approved payment plan gives you an affordable, flexible, and protected way to accomplish this.

Second Problem—Justifying Keeping the Property

The bankruptcy system has no trouble helping you pay debts related to your home. Other real estate can get trickier.

If you have investment property, you may need to justify that it’s financially sensible to keep that property. Specifically, you’ll likely have to justify spending money to catch up on the taxes.

For example, is the real estate worth more than you owe on it, including the taxes? If so, that more easily justifies paying the taxes to save your equity in the property.

Also, does the investment real estate generate a positive cash flow? If so, that also more easily justifies paying the taxes to preserve this positive cash flow.

If your investment property has negative equity and/or negative cash flow, it’s hard to justify keeping the property.

Why Does the Bankruptcy System Care?

It cares for budgeting and liquidation purposes.

To go through a Chapter 7 case you must pass the “means test.” That essentially requires showing that you don’t have the means to pay a meaningful amount to your general unsecured creditors. And that in turn usually requires showing a detailed budget. That budget includes a list of allowed expenses. Depending on the circumstances (including the equity/cash flow issues touched on above), you may not be able to include expenses on a financially unnecessary or unjustifiable investment property.

Under Chapter 13 case you pay what you can afford to pay to your creditors through a 3-to-5-year payment plan. As under Chapter 7, you have to justify paying property taxes on a property that isn’t your home. If that property is generating income and helping to pay the other creditors, putting money into that property to pay its taxes is more defensible. If the property is a cash drain justifying putting “good money after bad” into it would be hard to defend.

As for the liquidation issue, in a Chapter 7 case the bankruptcy trustee can liquidate anything that isn’t protected. The protection is mostly in the form of exemptions—property you’re allowed to keep. The Chapter 7 trustee will be inclined to take and liquidate your investment property if it will generate any cash for your other creditors.

Chapter 13 provides a way for you to protect assets you could otherwise lose in a Chapter 7 case. Essentially you pay more into your payment plan to cover the amount of money would have gone to your creditors in a liquidation of your investment property. That may be feasible, depending on your cash flow and on the liquidation value of that property.


Notice that there are some potential Catch-22s when dealing with investment real estate on which you owe property taxes. For example, having equity in the property makes it more prone to liquidation under Chapter 7, but having no equity makes keeping it and curing the taxes harder to justify. Under Chapter 13, a positive cash flow from the investment is important to justify catching up on the taxes. But there’s a good chance you don’t currently have a positive cash flow but rather are just expecting that to happen when certain things fall into place.

So figuring out how to deal with an investment property with owed taxes involves some careful financial and legal judgment calls. This is exactly the kind of situation you need the good counsel of savvy and conscientious bankruptcy lawyer.


The Tax Exceptions to the Automatic Stay

October 24th, 2016 at 7:00 am

In spite of you filing bankruptcy, the taxing authorities can still take certain very specific actions as exceptions to the automatic stay. 


The last few blog posts have been about bankruptcy’s automatic stay protection from the collection actions of creditors. The last couple of them have been about exceptions to that protection—when certain creditors can take certain actions.

Today we focus on a set of very limited exceptions to the automatic stay which applies specifically to taxes.

What Taxing Authorities CAN’T Do

The automatic stay protections are designed to immediately stop virtually all debt collection activity against you and your assets. The point is to have all creditors stop going after you so that everybody can shift to applying the bankruptcy laws to your financial situation.

Those bankruptcy laws may result in the discharge of a particular tax debt if that tax meets certain conditions. (A “discharge” is a legal, permanent erasing of a debt in bankruptcy.) And if those conditions aren’t met, the tax is not discharged in bankruptcy.

But regardless whether or not a tax is going to be discharged, the automatic stay prevents the taxing authorities from taking the usual actions to collect that tax. The automatic stay tax exceptions do NOT allow them to take any action to get your money or assets. The IRS and state taxing authorities can’t start or continue garnishing (“levying on”) your paychecks. They can’t levy on (take away) anything else you own. They can’t call you to pay the tax. They can’t mail you notices that you must pay the tax (except as stated below).

The Tax Exceptions to the Automatic Stay

What the taxing authorities CAN DO is take certain administrative actions related to DETERMINING the amount of tax you owe, NOT to COLLECTING the tax. So, in spite of you filing bankruptcy, they can do the following:

  • Start or finish a tax audit “to determine tax liability.” (See Section 362(b)(9)(A) of the Bankruptcy Code.)
  • Send you a notice about the amount of tax that you owe—a “notice of tax deficiency.” (Section 362(b)(9)(B).)
  • Demand that you file your tax returns, a legal requirement understandably not affected by your bankruptcy filing, and which indeed is often necessary to be able to administer your bankruptcy case. (Section 362(b)(9)(C).)
  • Make an “assessment” of your taxes and issue a “notice and demand for payment.” (Section 362(b)(9)(D).)
  • Under certain limited circumstances the assessment a tax lien can attach to your personal property and real estate. (Section 362(b)(9)(D).)

Again, other than these limited actions, it’s a violation of the automatic stay and so is illegal for the taxing authorities to take any other collection action against you once you file bankruptcy.


Catching Up on Your Property Taxes through Chapter 13

July 13th, 2016 at 7:00 am

If you are behind on property taxes on your home, Chapter 7 often doesn’t give you enough time to catch up. But Chapter 13 likely would.

Today we cover the 4th one of the 10 ways we listed recently that Chapter 13 helps you keep your home. When we gave the list we wrote:

4. Get Current on Past Due Property Taxes

Filing a Chapter 7 case doesn’t protect you from property tax foreclosure—beyond the four months that a case lasts. However, Chapter 13 does protect you and your home while you gradually catch up on those taxes. You do so through a court-approved payment plan that also incorporates your mortgage(s) and all other debts.

Here’s an example to show how this works in practice.

The Example

Assume that you own a home worth $225,000, with a mortgage loan balance of $200,000. Your property taxes are $1,850 per year, paid directly to your county tax assessor instead of through your mortgage holder.

For years you paid the yearly property taxes out of a combination of income tax refunds and scraped together savings. And you took cash advances on credit cards whenever there wasn’t enough money.

Then a couple of years ago you lost your job and didn’t find a new one for several months. Plus the new one is at a lower salary. So last year when it was time to pay the property taxes you’d already maxed out on credit. You couldn’t pay the $1,850 in taxes. With the payments due every month on the credit cards, the mortgage, and other bills, you couldn’t pay the property taxes this year again. So now you’re behind $3,700 plus interest.

Your mortgage lender has been after you for not paying the property taxes. You’ve managed to stay current on the mortgage, but occasionally did so paying it also through credit cards when you still had some credit available on them. The mortgage lender is now threatening to pay the property taxes and foreclose on the house because of your failure to keep current on the taxes. You’re now justifiably afraid that you’re going to lose your home.

Chapter 7 Won’t Likely Cure the Dilemma

Filing a Chapter 7 “straight bankruptcy” might help but, because of how property taxes work, possibly not help enough.

That’s because most mortgage lenders consider nonpayment of property taxes a breach of your contract with them. And that’s because the property tax creditor usually has a legal right to foreclose the property out from under them! So your lender will itself likely pay your property taxes at some point to avoid that from happening. The mortgage contract almost always allows them to do this.

Then your mortgage lender will put pressure on you to pay off the money it fronted for the taxes. It will most likely threaten to foreclose on your home to make you pay. And it will most likely follow through on that threat if you don’t pay up.

When Chapter 7 Might Help

Filing a Chapter 7 case CAN sometimes solve this problem. But only if that bankruptcy filing improves your cash flow enough so that you would have sufficient extra money to catch up on the property taxes quickly enough.

How fast? Fast enough to keep your mortgage lender happy.

The problem is not usually with the county or whatever tax authority you owe directly on the property taxes. In most places a tax foreclosure by the county or other tax authority doesn’t happen until you are behind on property taxes a number of years.

Rather the urgency is with your mortgage lender. It would prefer not to put up the money for the property taxes instead of having you do it. And then once your lender does pay the taxes, it wants you to bring the account current quickly.   

Going back to our example, if you’re behind two years of taxes, amounting to $3,700 plus ongoing interest, you and your bankruptcy lawyer would have to see how much you could afford to pay towards that after your Chapter 7 case has “discharged” (legally written off) all or most of the rest of your debts. If you can keep the property tax authority and your lender happy by catching up fast enough, Chapter 7 will have solved your problem. Your lawyer will be able to make the required calculations to advise you about this in advance of deciding which way to go.

The Additional Help of Chapter 13 “Adjustment of Debts”

If you CAN’T satisfy your mortgage lender fast enough, Chapter 13 would force your lender to let you have more time. In most cases you’d have between 3 and 5 years to catch up on the property taxes.

Stretching out the catch-up period that long reduces how much you have to pay monthly towards the property taxes. That makes catching up easier. Especially if you are far behind, it could turn an otherwise impossible situation into a workable one. Catching up the $3,700 property tax arrearage over the course of a few months could very well be impossible for you. Stretching that out over 3 or 4 or 5 years (monthly payments of about $75-$100) should be much more feasible.


A Fresh Start with an Income Tax Lien on Your Home

February 8th, 2016 at 8:00 am

You owe income taxes, and now the IRS or state has recorded a tax lien on your home. Chapter 13 may get rid of both the tax and the lien.


Income Taxes that Can Be “Discharged” (Legally Written Off)

If you owe an income tax debt, it can be discharged like most other debts. The tax debt just needs to meet certain conditions for that to happen. Essentially, two conditions have to be met:

  • 3 years must have passed since the tax return for the tax was due, and
  • 2 years must have passed since that tax return was actually submitted to the IRS or state.

There are a couple other possible conditions but they very seldom come into play. So most of the time you can get rid of income tax debts simply by waiting until both of those two periods of time have passed.

If you owe a bunch of income taxes, having that legal obligation lifted off you would sure help you get a fresh start.

But What If a Tax Lien is Recorded against Your Home in the Meantime?

A tax lien recording by the IRS or state can turn a tax debt that you could discharge and legally not pay anything into one that has to be paid in part or in full.

That’s because a recorded tax lien involuntarily turns your home into collateral for payment of the tax. The tax becomes secured by your home.

Look at it this way. You can’t just discharge a mortgage debt through bankruptcy but then keep the home. That’s because the mortgage lender has a right to foreclose on your home if you don’t pay the debt. The lien created by the mortgage survives the bankruptcy discharge of the related debt. Similarly, once the IRS or state record a tax lien, that lien survives a bankruptcy discharge. So even if the tax at issue meets the conditions discussed above so that it could be discharged, the tax lien continues to encumber the home.

This means that after the bankruptcy case would be over, the IRS or state would likely be able to enforce the lien against your home, forcing you to pay the tax debt in order to clear the title to your home.

But What If There’s No Equity in the Home to Cover the Tax Lien?

In a Chapter 7 “straight bankruptcy if a tax lien is recorded before the Chapter 7 case is filed, as just mentioned that tax lien continues in force after the discharge of debts and the closing of the case.

But under certain limited circumstances the IRS/state might release its lien, eventually. For example, your home could be worth much less than the liens that are on the title ahead of the tax lien. Then if there’s no likely chance that there would ever be any equity in the home for the IRS/state upon the sale of the home, it may be persuaded to release the lien. Perhaps this might require paying a relatively small “nuisance value” amount.

However, the IRS/state would not release its tax lien if the home was worth close to the amount of the prior liens. Then any upcoming increase in the home’s value (together with any progress in paying down the mortgage and any other liens) would build equity for the tax lien to attach to. The IRS/state would then likely just wait until you sell or refinance the home. It would then release its lien only when it’s paid in full (including all the interest and penalties that’s accrued in the meantime).

So Chapter 7 is not likely a good way to deal with a tax lien even when there is presently no equity to cover that tax lien.

If No Equity for the Tax Lien under Chapter 13

Chapter 13 “adjustment of debts” can do better.

That’s because Chapter 13 has a very handy legal method through which the IRS/state could be required to release the tax lien if there is no equity in the home for the lien to attach to at the time that the case is filed.

Chapter 13 provides a procedure (unavailable under Chapter 7) by which the bankruptcy judge could determine that the liens ahead of the tax lien eat up all of your home’s equity, leaving none for the tax lien.

As a result the tax debt would treated as a “general unsecured” debt.  It would be lumped in with all your other “bottom-of-the-barrel” debts. You would pay on that tax debt only as much as you could afford to pay during the life of your 3-to-5-year Chapter 13 plan. In many situations you would pay little or nothing because you would first be required to pay other legally higher-priority debts.

And even if you do pay a portion of your “general unsecured” debts, adding the tax debt to the rest of your “general unsecured” debts usually doesn’t increase what you pay. That’s because most of the time you pay a fixed amount of that pool of debts. So adding the tax debt simply reduces what the other creditors receive without obligating you to pay more.

At the end of the Chapter 13 case, any portion of the tax debt that hasn’t been paid is forever discharged, and the IRS/state releases its tax lien.


Chapter 13 is likely your best option if 1) you have a tax debt that would qualify for discharge under the timing rules, and 2) the liens ahead of the tax lien are at or close to the value of your home. Unlike Chapter 7, you can legally establish that your home has no equity for the tax lien to attach to, and thus that the tax debt is effectively unsecured. Then at the end of the Chapter 13 case that tax debt is discharged and the tax lien released from your home’s title. You and your home would then indeed have a fresh financial start.


A Fresh Start with Unpaid Property Taxes on Your Home

February 3rd, 2016 at 8:00 am

Falling behind on property taxes is dangerous, and scares your mortgage lender. Bankruptcy can help you deal with both.


Is Chapter 7 “Straight Bankruptcy” Enough Help?

It possibly can give you enough of a fresh start with your other debts so that you can catch up on your property taxes. But doing so while keeping your mortgage lender also satisfied is difficult to pull off.

If you’ve fallen behind on your property taxes, sometimes just writing off your other debts would give you enough financial breathing space so that you could catch up on your property taxes. Tax foreclosures usually don’t happen until you’re years behind, so you may have a fair amount of time to get current.

So find out from your attorney how much time you would have to catch up. Some tax creditors will set up a monthly payment plan with you. Find out if that would be available to you and if you could afford the payments once you discharged (wrote off) your other debts.

If so, a Chapter 7 “straight bankruptcy” might give you the help you need.

Frightening Your Mortgage Lender

But the biggest practical problem in this is usually your mortgage lender. Even if losing your home from a property tax foreclosure is years away, falling behind on your property taxes gets your mortgage lender excited, in a bad way. Enough so that it threatens to or starts its own foreclosure, usually a much faster procedure for losing your home.

Your mortgage lender gets anxious if you fall behind on property taxes because:

  • The lien that the property tax creditor has on your home comes ahead of the mortgage lender’s lien. This means that your lender would lose its own rights to your home in the event of a property tax foreclosure. That’s your lender’s worst nightmare and it will do anything to prevent that.
  • Your contract with your mortgage lender requires you to keep current on the property taxes. So you are in violation of that contract by falling behind on the taxes, even if you are current on the mortgage payments.
  • Many homeowners’ monthly mortgage payment includes an additional “escrow” portion for property taxes. So you may well be behind on property taxes because you’ve also fallen behind on the mortgage payments.
  • That “escrow” extra monthly payment often also includes money for your homeowner’s insurance. Falling behind on that REALLY scares your lender because it could lose its collateral overnight in a fire or other disaster. Your lender would then pay out of its own pocket for its own version of insurance—usually much more expensive than what you were paying—and tack that insurance premium onto your bill. That puts you even further behind on your mortgage.
  • Finally, even if you are current on your insurance and your mortgage payments because you pay those separately and have managed to keep up on those, your lender considers you falling behind on property taxes as a strong sign that you are not financially responsible.

Chapter 13 “Adjustment of Debts” Buys More Time, Protects Your Home

A Chapter 13 “adjustment of debts” bankruptcy solves both your property tax problem and your mortgage lender one.

You will very likely be given as much as 5 years to catch-up on your property taxes. This reduces how much you have to pay monthly, making it more feasible. Throughout that time the tax creditor would not be able to foreclose or take any other collection activity.

Under Chapter 13, even though you’d have as long as 5 years, there’s a good chance you’d actually be able to pay your back property taxes more quickly than after a Chapter 7 case. That’s because your Chapter 13 plan can usually delay paying other important creditors, such as the IRS or a spousal support enforcement agency, while you first catch up on the property taxes. Besides saving you on interest, that will make your mortgage lender less anxious.

As for solving your mortgage lender problem, Chapter 13 forces your lender to not take any action against you as long as you catch up on the property taxes as your court-approved plan allows you to do.

And if you are also behind on your mortgage payments, Chapter 13 is a particularly good option. You are usually allowed to stretch out your mortgage catch-up payments for up to 5 years as well. If you have a second or third mortgage, you may be able to “strip” it from your home’s title, saving you money each month and long term. Other liens—for income taxes, for example—can often be dealt with favorably. And throughout the life of the Chapter 13 case, as long as you are meeting the terms of your payment plan, you and your home will be protected from foreclosure or any other collection efforts by your mortgage company.


Chapter 7 and Chapter 13–Resolving Your Property Tax Debt

October 19th, 2015 at 7:00 am

Bankruptcy helps with your property taxes either by writing off your other debts or by buying you more time to catch up.  


Discharge Your Other Debts with Chapter 7 So You Can Pay Your Property Taxes 

If you’ve fallen behind on your property taxes, presumably your income has not been enough to meet your expenses plus payments on your other debts. Sometimes just writing off your other debts would give you enough financial breathing space so that you can catch up on your property taxes.

Find out from your attorney how much time you would have to catch up on your property taxes. You often have quite a long time. But the rules can be very strict about property tax foreclosures, so be absolutely clear about what the true deadlines are.

Some tax agencies will set up a monthly payment plan with you. Find out if that would be available to you and if you could afford the payments once you discharged your other debts.

In these situations a Chapter 7 “straight bankruptcy” may give you all the help you need.

Use the Special Powers of Chapter 13 to Take Care of Property Taxes

But you may not have enough time to pay the taxes before the tax foreclosure.

Or even if the tax foreclosure isn’t right around the corner, you may need more help for the following reasons:

  • Even if your county or tax agency provides the option of an installment payment plan, you can’t afford the monthly payments even after discharging your other debts.
  • A payment plan is not offered by your tax agency.
  • The collection process has gone too far for you to be eligible for a payment plan.
  • You were already in a payment plan but could not pay it as agreed.
  • Your mortgage lender is requiring you to bring the taxes current more quickly, usually on top of initiating its own foreclosure or threatening to do so.

Under the Chapter 13 “adjustment of debts” type of bankruptcy, you can catch-up on your property taxes over a period of as long as 5 years. This reduces each month’s installment payment, making it more manageable. And during that time the tax agency would not be able to foreclose or take any other collection activity—saving you both worry and those extra costs—as long as you fulfill the terms of the court-approved Chapter 13 plan.

Chapter 13 also often can enable you to pay your back property taxes more quickly than if you were in a Chapter 7 case, saving you interest and penalties. This is possible because your plan can delay paying other important creditors, such as the IRS or a spousal support enforcement agency, while you first catch up on the property taxes.

And perhaps of greatest practical importance, Chapter 13 is usually a much better option if you are also behind on your mortgage payments. Most of the time if you are behind on property taxes that means that you are also behind on your mortgage(s). Chapter 13 can be an excellent way to catch up on your mortgage because it also allows you to stretch out your mortgage catch-up payments for up to 5 years. During this time, as long as you meet the terms of your court-approved plan, you and your home will be protected from foreclosure or any other collection efforts by your mortgage company.


Mistakes to Avoid–Selling Your Home Just Because You’re Behind on Property Taxes

September 23rd, 2015 at 7:00 am

Falling behind on property taxes can have serious consequences, but does not necessarily mean you should hurry to sell your home.


Property Tax—the Superior Lien

Your local property tax agency usually holds the first lien on your home. That lien comes ahead even of your mortgage. And it’s way ahead of other debts on your home’s title, like creditor judgment liens and IRS and state income tax liens.

Your property tax agency can foreclose on and seize your property if you don’t pay the property taxes. And because of its superior position on the title, the property tax agency can not only take the home away from you but at least theoretically also from your mortgage lender. So if you fall behind on property taxes, at some point the mortgage lender will usually pay the back property taxes to preserve its own rights to your property.

If your mortgage lender does pay some of your property taxes you can bet it will add the amount to your mortgage debt. Most conventional mortgage documents specifically give the mortgage lender the right to pay the property tax, then add that amount to the arrearage that you must pay to the mortgage lender to get current. Indeed your mortgage lender very likely has the right to begin its own foreclosure against your home simply for you being behind on your property taxes.

Much of the time those who fall behind on property taxes are also struggling to pay their mortgage, so the homeowner is usually behind on both and is being foreclosed on for both reasons.

The Temptation to Sell

So, if you’ve fallen behind on property taxes you are likely in serious financial trouble. You understandably may decide that you should sell your home quickly to get any of your equity out of it. And if you don’t have any equity, you may still decide to sell, through a short sale if necessary, to prevent the home from getting foreclosed by either the property tax agency or your lender.

Selling your home, and selling it fast, may be best for you in this situation. But maybe not.

Bankruptcy as the Solution if You Fall Behind on Property Taxes

The last half-dozen or so of our blog posts have been about some of the powerful ways that filing Chapter 7 or Chapter 13 can let you keep your home or sell it later when you are ready to do so.

Very briefly, Chapter 7 “straight bankruptcy” gets rid of most or all of your other debts so that you can focus your financial resources on your home—on the property taxes and the mortgage(s). Chapter 13 “adjustment of debts” gives you years to catch up on the unpaid property taxes and on any mortgage payments, while protecting you and your home from either creditor’s foreclosure or other collection efforts. Chapter 13 also has creative ways of dealing with certain second or third mortgages, income tax and child support liens, and other home-based debts, all of which can greatly help you catch up and keep current on your property taxes.

If you don’t want to keep your home but instead sell it, bankruptcy can buy you enough time to do so later instead of immediately. Chapter 7 likely buys you only a couple months, although more if your attorney can convince your mortgage lender. Depending on all the circumstances, Chapter 13 can delay your sale by anywhere from a few months to as long as five years. Either way you can get more market exposure and so would more likely get the highest price. You’d have more time to make any needed repairs or renovations, or to put your house on the market at the most favorable time. And beyond straight financial considerations, you’d more likely be able to market and sell your home whenever doing so best fits within your family and/or personal circumstances.

Sell Only If, and When, It’s Right for You

Falling behind on property taxes is not good. It could be a sign that you can’t afford to keep the property long term. But that depends on all your circumstances. Given the power of bankruptcy, find out what it can do for you and your home.


Internal Revenue Service Issues: Tax Levies vs. Tax Liens Part Two

August 29th, 2014 at 8:58 am

tax levyNeither a tax lien nor a tax levy from the Internal Revenue Service is a positive situation, and can certainly have dire consequences for you as a consumer and a taxpayer. A lien simply assigns the government’s right to your assets before any private creditor and is normally a result of unpaid income taxes and can be more than an inconvenience for anyone. In contrast, a levy is much more serious. Fortunately, there are remedies for both scenarios. A tax lien can result in high bills owed, a public filing of the tax lien, as well as attaching the label to every type of property you own.

Although selling the property can certainly help the situation in some cases, it is important to remember that all proceeds will go towards paying the lien, often leaving you in even more hardships. There are other ways to get rid of a tax lien, however, and use of a Texas attorney can make all the difference in how your case is resolved.

Consider the following options when a lien is placed on you by the Internal Revenue Service to help your case:

  • Paying off the overdue debt: Although most often easier said than done, should you have the means to do so, this is your best option. All tax liens will be removed within 30 days of the resolved debt, although this must be done in full;
  • Discharge of property: This option can make certain property that you owe exempt from the lien, and taking its equity out of the hands of the IRS and the federal government. While this will not always apply, it may help you save your residence or vehicle;
  • Withdrawal of the lien: While you are still liable to pay the full amount you owe the IRS, a withdrawal of the lien assures all other creditors that the government is not longer competing for your assets. Certain criteria must be met, such as ongoing compliance with payment plans and tax code.

A tax levy can be more complex, although there are ways to get this removed as well. The following is a short list of ways an experienced attorney can cause the least amount of hardship on you possible by getting a levy removed:

  • If you filed for bankruptcy before the levy notice was issued;
  • Proving the levy will cause undue economic hardship;
  • You did not have adequate opportunity to dispute the claim;
  • A desire to set up a payment plan of some sort;

These tax levies are no joking matter and can result in you losing your credit, property, as well as significant financial losses. A Texas bankruptcy lawyer with experience dealing with the IRS can not only help you protect your assets, but also your livelihood. Contact The Law Offices of Chance M. McGhee today for a free initial consultation regarding your economic hardships.

Internal Revenue Service Issues: Tax Levies vs. Tax Liens Part One

August 13th, 2014 at 8:35 am

tax lienIt is not uncommon for a person to find themselves behind on their income taxes, and many across Texas and the rest of the country suffer from this same problem. Everyone has seen the proverbial person walking through the door of his or her accountant’s office with years worth of paperwork in hand. However, this only generally occurs when they receive notices from the Internal Revenue Service or simply have all of their money frozen.

In many cases, filing for bankruptcy can assist you in your financial predicament with the government. First, you should consult a Texas bankruptcy attorney to assess what is really going on and to find the best way to remedy the problem. In this way, it is critical to understand the key differences between a tax levy and a tax lien.

Consider the following deviations between a tax levy and a lien, and why one is more critical than the other to your short and long term financial health:

  • The IRS is not seizing your property when a lien is imposed: A tax lien only secures the governments interest in your property should your debt become a liability. This does not mean it is not a big deal, however; all levies are reported to all creditors, and becomes public on your credit scores, making it much more difficult to obtain a loan;
  • Tax liens can turn serious very quickly: While your property is not seized during a lien, a levy works completely differently. In this case, the government is, in fact, taking your property to settle a passed debt–often the result of a grossly overdue lien.
  • Almost nothing is safe during a levy: If you are subject to a tax levy by the IRS, they can seize almost any asset you own to repay the debt. This includes your home, car, wages, and even bank and retirement accounts. This extends to accounts that are in someone else’s name as well; including things such as life insurance and joint accounts.

If you have received a notice from the Internal Revenue Service regarding unpaid income taxes of your own, it is imperative that you act as soon as possible. A professional and experienced Texas bankruptcy attorney can assist you by presenting you with all the information, and advising you how to move from there.

Contact The Law Offices of Chance M. McGhee today for a free consultation and personal legal assistance from a San Antonio bankruptcy attorney on how to move forward in your IRS tax situation for the best possible outcome.

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