Property Taxes Considered Secured Debt in Bankruptcy
Most people don’t quite understand how property taxes work. The taxing authorities have a lien on a Debtor’s house at the first of the year, therefore; property taxes are considered a secured debt. If a Debtor is behind on their taxes when they file a Chapter 13 bankruptcy, the back taxes must be paid through the bankruptcy.
Another issue with property taxes, since they are a secured debt, they do have the right to foreclose on your house if you are delinquent. If a Debtor gets too far behind on their property taxes, the mortgage company will often pay the property taxes to protect their interest in the house. This is perfectly legal and there is nothing that can be done to make them reverse the payment. However, they cannot pay pre-petition property taxes and then try and increase a Debtor’s payment to collect for those taxes. The escrow advance for pre-petition taxes must be included in the mortgage company’s proof of claim.
This does not mean the mortgage company cannot increase a Debtor’s payment to provide for future taxes. Usually, if a mortgage company does pay property taxes they will increase a Debtor’s payment to provide for future taxes, and again, this is perfectly legal.
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