The start of a new year isn’t always just resolutions and diet plans. For far too many Michigan residents, January is tax foreclosure season. If you are worried about losing your home this winter, here’s how a Chapter 13 bankruptcy can put a stop to a property tax foreclosure and help you catch up with your property tax debt.
Many Michigan residents struggle to juggle a mortgage, property tax bills, insurance and other debts. When emergencies arise or income is scarce, you may find yourself putting off taxes until things get better. That may make sense in the short term - the late fees and interest on a property tax debt may be lower than a credit card, for example. However, if you let your property taxes go too long, you could find that decision will put many of your other financial investments in danger.
After the second year of unpaid property taxes, Michigan law says that your county treasurer’s office can forfeit your real property. If you still haven’t paid by March 31 of year three, you could face a property tax foreclosure by the county or state depending on where the property is located.
For many Michigan residents, their first warning that they have crossed the line into tax foreclosure status in when they receive a notice of foreclosure. When that happens, you may be able to use a Chapter 13 Bankruptcy to put a pause on the property tax foreclosure proceedings and buy yourself time to pay everything you owe.
If you are facing the ticking clock of property tax foreclosure, you may feel desperate to pay those debts off as quickly as possible so you won’t lose your home. That may seem like the right choice even if your other debts are bigger or more expensive. You may have heard that a bankruptcy won’t help you save your house, or that you may even be forced to sell as part of the process. But that isn’t always the case.
It’s true that if you have more than the allowed amount of net equity in your home, a Chapter 7 bankruptcy trustee will sell that property to free up money to pay off your other debts. But the same is not true in a Chapter 13 bankruptcy. Instead, if you have the regular income to qualify, you and your bankruptcy attorney will put together a plan to allocate your income over the next three to five years and repay part or all of the debts that existed on the day the petition was filed.
So how does that help with foreclosure? Every bankruptcy petition filing triggers an “automatic stay” -- an order from the bankruptcy court that stops all collections proceedings where they are, for as long as the bankruptcy is still pending. That means the collections companies must stop calling, your creditors can’t file suit, and the property tax foreclosure is put on hold. As long as the property hasn’t gone to a foreclosure sale, that automatic stay buys you time to sort out and repay your tax debt, so you won’t lose your home.
Once your Chapter 13 bankruptcy petition has been filed and your repayment plan approved by the trustee, you will have 3-5 years of payments before your matter can be discharged. That means 3-5 years of new property taxes. Unlike the property tax debt that caused the foreclosure proceedings, these new taxes will not be part of your Chapter 13 repayment plan. But that doesn’t mean you should ignore them.
The successful completion of your Chapter 13 bankruptcy depends on you not taking on any new debt without the approval of the trustee. The taxes that come due are considered an “administrative expense” necessary to maintaining your estate while the bankruptcy is pending. It will be up to you to pay these new taxes in full before your repayment plan is finished and your bankruptcy discharged.
If you are able to successfully complete your Chapter 13 repayment plan, whatever balance remains on the debts included in it will be forgiven. That means that anything you owed in back taxes will either have been paid off or discharged. The taxes that came due during your bankruptcy will need to be paid too, or the discharge will be delayed.
However, when all is said and done, a Chapter 13 bankruptcy will leave you with no balance owed on your property taxes, and no reason to foreclose on your home. Your bankruptcy attorney can help you work with the county to confirm that the foreclosure proceeding will be dismissed as soon as the stay is lifted, so you can keep your home.
At John A. Steinberger & Associates, P.C., we know how back property taxes can create big problems for homeowners. We are a full-service bankruptcy law firm in Southeast MI, serving debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. We meet with clients facing property tax foreclosures to help them decide how best to protect themselves, and their homes. Call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.