The Bankruptcy Code considers a tax debt a priority debt if it is (1) a tax on property; (2) incurred prior to the commencement of the case; and (3) is last payable without penalty less than one year before the case filing. Taxes that are granted a priority status must be paid in any type of bankruptcy case. It is all about timing when trying to discharge property taxes. Thus, any property tax, real or personal, that was due more than one year before the case filing is dischargeable in a Chapter 7 bankruptcy case.
This applies to real property taxes as well as personal property taxes. However, a tax lien on real property is not treated as a priority debt in bankruptcy but as a secured debt. In Utah, a tax on real property is a lien against the property assessed. On January 1st of each year, if any real property taxes are unpaid and overdue, the lien will attach to the taxpayer’s property. A real estate lien is a legal claim on assets that allows the holder to obtain access to the property if debts are not paid. It must be filed with and approved by a county records office or state agency.
Bankruptcy itself does not eliminate a lien attached to a bankruptcy debtor’s property, such as a personal residence. Although bankruptcy may be used to eliminate some types of liens through an adversary proceeding, property tax liens survive bankruptcy and may not be removed until paid. even if your property taxes are removed in a bankruptcy case, the property tax lien will remain on your home since it is a secured claim. This may create a cloud on the property’s title since a tax lien is a superior lien ahead of mortgage liens. This may also make it more difficult to sell the property at a future date.
A property tax lien is secured by the property on which the applicable tax is owed, making it a secured debt for most purposes including bankruptcy. In Chapter 13 reorganization bankruptcy cases, debtors are required to repay 100 percent of any secured debt over their three- to five-year reorganization repayment plans.
Consult with an experienced Utah bankruptcy attorney, such as one of the many qualified attorneys at the Morrison Law Group who can explain the process and timeline of both Chapter 7 and Chapter 13 bankruptcy cases. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.