How does bankruptcy affect tax certificates?
Under the Bankruptcy Code, tax liens for unpaid property taxes are classified as secured claims, meaning the debt is secured by the property’s value.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy:
- Secured claims are paid first through the sale of assets.
- Property tax liens often take priority over all other debts.
- Most tax debts cannot be eliminated and must be repaid through Chapter 13 bankruptcy.
Chapter 13 Bankruptcy
In Chapter 13 bankruptcy:
- Tax debts must be repaid through a court-approved repayment plan.
- If property is not surrendered to the bankruptcy court or trustee, the debtor remains responsible for unpaid property taxes.
What happens to tax certificate investors during bankruptcy?
If a tax certificate is sold and the property owner files for bankruptcy:
- The debtor must make payments to the investor through the bankruptcy trustee.
- The investor can legally foreclose if the debtor fails to make payments
- Filing bankruptcy can temporarily stop the sale of the property
What can the Tax Collector do during bankruptcy?
The Tax Collector is prohibited from attempting to collect tax debt during bankruptcy proceedings due to the automatic stay that goes into effect as soon as the debtor files for bankruptcy protection.
How are taxes collected?
If the property has no equity and the trustee abandons the property: The Tax Collector looks to the property itself for collection, in accordance with Florida statutes.
If property is in the bankruptcy estate: The Tax Collector works with the court-appointed bankruptcy trustee (Chapter 7) or the repayment plan (Chapter 13) to collect the debt.