Kentucky Bankruptcy Law

Counsel with Care

What you should no about property tax liens

Past-due taxes on real estate can be especially pesky to resolve in a Chapter 13 and one must use some caution. Property taxes based on the value of real estate (ad valorem taxes) have greater statutory protections than secured loans. So, if a home if foreclosed on and sold at auction, the liens for ad valorem taxes must be satisfied before money goes to secured creditors. This remains true even if those tax liens have been sold to third-party collectors.

The other benefit that tax debts bestow of the holders of that debt is a statutory 12% interest based on KRS 134.125. So unlike the zero percent interest for arrears on a secured loan against real estate, tax debts are going to accrue a whopping 12% simple interest even during a Chapter 13. This can make or break a plan that is very close to being feasible. So, if you have to choose between not paying a property tax bill and a house payment, you might want to lean towards paying that tax bill IF you plan on trying to keep the house through a Chapter 13.

Here is where some caution comes in: KRS 134 only allow for that interest to accrue on the original tax due or the amount it sold for if less. When the holder of that debt files their claim, they will almost always seek 12% interest on the basis PLUS attorney fees, accrued interest, and various other fees they can claim. That can add thousands to a Chapter 13 plan over the course of five years. So, be careful and object to such claims.


March 14, 2012 - Posted by | Bankruptcy, Chapter 13, Foreclosure, Plan payments, Pre-filing planning | , , , , , , , , , , ,

1 Comment »

  1. Very informative post. Thank you for sharing, it’s good to get the need-to know information out there.

    Comment by San Diego Bankruptcy | July 2, 2012 | Reply

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