Pre-petition Property Taxes

One of the benefits to filing a bankruptcy is to stop creditors from trying to collect on pre-petition debt, which is any debt that was incurred prior to filing the bankruptcy. One of the common pre-petition debts that causes confusion for both Debtors and Creditors is property taxes. If property taxes are not escrowed with the mortgage, if a Debtor is behind on the mortgage payment they are usually at lease one year behind on the property taxes as well.

Property taxing agencies all have liens on the property for which the taxes are owed. In order to protect their interest, many times mortgage companies will come in and pay the property taxes. Regardless if the taxes are paid pre-petition or post-petition, the property taxes are a pre-petition debt. It is a stay violation if the mortgage company pays the taxes post-petition and then tries to collect on them as if they were a post-petition debt. However, it is perfectly legal for the mortgage company to pay the taxes and include them in the proof of claim to be paid through the Chapter 13 plan. It is also legal for the mortgage company to increase the mortgage payment to start to escrow for future taxes. If the mortgage company pays the taxes for even one year, usually they will increase a Debtor’s mortgage payment to ensure that future taxes will be paid.

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