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Are Property Taxes Dischargeable in Chapter 7?

Published March 2, 2013 by Sasser Law Firm

Not all debt is created equal. We know this subjectively (who would you prefer to pay back, your mom or your credit card company?), and we know this objectively by reading the Bankruptcy code. Mortgage payments, car loans, tax debt, child support, credit cards, and student loan debt might all be mixed up together on your kitchen table when it comes time to pay your monthly bills, but congress has spent the last one-hundred and seventeen years devising a bankruptcy system that ranks all those different bills in a careful order of priority.

Secured creditors don’t need much protection because a debtor is incentivized to pay his debt out of fear of having his collateral repossessed. But what about unsecured debts? Congress has created a system of prioritizing some debt (certain taxes and domestic support obligations, are the most common) over the rest. In a chapter 13 case, priority debt must be paid in full over the course of the plan. In a chapter 7 case, priority debt simply survives the bankruptcy discharge intact.

Property taxes that come due within one year of the filing of a bankruptcy case are considered priority. If the debtor still owns the property being taxed, those property taxes are secured, too. Since property taxes must be paid at a foreclosure sale, though, it is sometimes advisable to delay paying even priority property taxes for as long as possible, with the hope that the foreclosing bank will pay the property tax before the county takes more serious steps to collect against the debtor.

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