Monday, March 12, 2012

Property Taxes in Bankruptcy

       As I write this article, the issue of property taxes is still unsettled in the Federal Districts of Tennessee, the 6th Circuit, and in Bankruptcy law all over the country. Nevin Law Firm was fortunate enough to be the ones with the case to settle this newly arisen issue.

       This issue involves the treatment of property taxes in a Chapter 13 plan. Tennessee statute states that late paying property taxes are subject to 1% per month (12% per year) interest rate and a .5% per month (6% per year) penalty for a total of 18% rate. Section 506 of the Bankruptcy Code determines what post-petition interests and “fees, costs, and charges” are allowed. We are arguing that the additional 6% penalty is not a fee, cost, or charge and therefore should not be allowed. Metro Trustee, obviously is arguing they are entitled to the additional 6%.

       Now, for a Chapter 13 debtor every dollar counts. Debtors are placed on a very tight budget to pay as much as they can afford to their creditors so an additional 6% payment can break a budget, even if its only a few dollars extra per month. Additionally, after combining all these cases, the 6% penalty can mean hundreds of thousands of dollars to the counties of Tennessee and even more when addressing the entire 6th Circuit. Another implication of this is that if a “penalty” is found to be a “fee, cost, or charge” other secured creditors will be able to collect post-petition penalties that accrue in the case. This will surely equal millions of dollars.

       We argued the issue two weeks ago and submitted supplemental briefs last week. Currently, the Judge is researching and writing his own opinion to decide whether we or the Metro Trustee is correct in interpreting the Bankruptcy Code, and I am eagerly awaiting his decision. It is very likely this case will go to the 6th Circuit Court of Appeals and possibly the Supreme Court (which would be such an honor as a venue to argue the issue). Thus no matter the current decision, the issue will continue to be contested for the next couple of years. Again, we are very excited at the Nevin Law Firm to have the honor and responsibility to be handling this case and will post an update as soon as we receive the decision.

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