Chapter 13 Bankruptcy Allows Payment of Delinquent Taxes After Redemption Period Expires (In re: Robinson, Eastern Division, 577 B.R. 294 (December 2017)).
When considering redemption/repayment of property taxes, the Northern District has split twice in the last six months. Both involve debtors trying to pay delinquent taxes through a Chapter 13 Bankruptcy plan. The Debtor in need? A bankrupt on the verge of losing their property to a tax sale.
The first and larger split is whether a Debtor can save the property after the redemption period has run, but before a tax deed issues. The second (and hopefully less frequent) issue is whether the Debtor can file bankruptcy after 5:00 P.M. on the last day redemption and save the property. Obviously, if the redemption period running is irrelevant for purposes of paying the debt through the plan, the second issue is moot.
The Northern District Bankruptcy Court (Eastern Division) ruled in the Robinson case that a debtor can prevent the issuance of a tax deed, even when the redemption period has run when the Chapter 13 is filed. The Robinson Court cited the 7th Circuit case In re Lemont as authority for this holding.[i] Essentially, Robinson held that if a tax purchaser is to be treated as a secured claim (as stated in Lamont), there is no reason to treat the running of redemption as a watershed moment. The Debtor still owns the property, and the claim of the tax purchaser can be modified as any other secured claim. The Court concluded that because the tax purchaser could recoup his initial investment under state law, there was little prejudice to the purchaser.
In May (Jerklin) and September (Adger) of 2017 two Northern District Courts reached the opposite conclusion.[ii] Both also cited the Seventh Circuit Lemont Decision. The Jerklin and Adger Courts seemed to accept without debate that a debtor’s ability to pay the taxes through the Chapter 13 plan ends the day the redemption period expires. The language from Lemont is below, and the reader is encouraged to reach their own conclusion.
But what time of day you ask? The agreement of the Jerklin and Adger Courts ended there. The Judge in Adger seized upon the language in Lemont, which distinguishes between a debtor redeeming and a debtor treating the delinquent taxes as debt in a bankruptcy filing. Because the debtor is not redeeming, the Court held that the rules and standards governing electronic filing prevail over the state statute regarding timely redemption. For that reason, any time before midnight would be sufficient. The Judge in Jerklin simply relied upon the state statute, drawing the line at the time the county office closed.
Central point? The case should be filed before redemption expires (and before 5:00 P.M.) to avoid any argument. But it does seem that based upon the language in Lamont, debtors have a strong argument to save the property until the deed is signed.
[i] Lemont stated:
“His assertion (creditor seeking a deed) that the full redemption amount must be paid in a lump sum before the redemption deadline—i.e., that a proper redemption must be made—is mistaken. The plan is treating his secured claim, not formally redeeming the property… The expiration of the redemption period did not affect the plan's treatment of (the creditor’s) secured claim except that, if the debtors had failed to comply with the plan, then his equitable remedy would have survived and he could have sought an order to issue a deed. Accordingly, the expiration of the redemption period does not affect the validity of the plan or necessitate a modification of the automatic stay so long as the debtors comply with the plan. In Re Lemont, 740 F.3d 397 (7th Cir. 2014)
[ii] In re Demetrius Adger, 17-20163 (September 20, 2017); In re Harold L. Jerklin, 17-07999 (May 19, 2017).
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