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Addressing Property Taxes in Bankruptcy

Real Property Taxes in Texas

Texas has no state income tax, so homeowners and owners of other real estate here pay comparatively high property taxes. These property taxes pay for more of your local governmental services than any other source of funds.

It’s expensive to not be current on your property taxes. If you fall behind, you will have to pay a penalty of up to 12 percent of the tax, in ADDITION TO interest at one percent per month. You could also be sued for collection, which adds even more penalties and costs. Your property could even be sold at auction to pay the taxes. (For your convenience, the Texas Window on State Government website has more helpful general information on property taxes.)

Be Able to Afford to Pay Property Taxes by Discharging Other Debts

If you’ve fallen behind on your property taxes, then most likely your income has not been high enough to meet your expenses, including whatever you’ve been paying on your other debts. Sometimes just discharging (legally writing off) the other debts will enable you to catch up on your property taxes.

Some tax entities will set you up on a 36-month payment plan to catch up. If your county or other local tax entity has such a policy and you can afford the payments you need to pay, a Chapter 7 “straight bankruptcy” could be what you need.

Chapter 13 Gives You More Leverage over Property

But a catch-up payment plan may not work in your situation if:

  • You can’t afford the required monthly payments.
  • This kind of payment plan is not offered by your tax collector.
  • You are no longer eligible for the payment plan because the collection process has gotten too far along.
  • You’ve already tried a payment plan, but could not make payments consistently.
  • Your mortgage lender requires you to bring the taxes current much more quickly.
    • Under a Chapter 13 “adjustment of debts” case, you can stretch your catch-up property tax payments out over as many as five years, thus reducing the amount of each month’s installment and making the payments more affordable. During that time the tax authority would not be able to take any other collection action, which would save you worry. You would just need to continue fulfilling the terms of your court-approved Chapter 13 plan.

      Chapter 13 may also allow you to catch up on your property taxes relatively quickly — to keep the accruing interest and penalties down — by delaying payment to other important creditors, such as the IRS or a support enforcement agency.

      Also, if you are behind on property taxes, you are likely also behind on your mortgage. Chapter 13 could be the best way to address that problem as well since it enables you to stretch out your mortgage catch-up payments for up to five years, while protecting you from foreclosure and other collection efforts by your mortgage holder.

      So if you have a problem with your property taxes and you live in the Dallas-Fort Worth metroplex, please call Bailey & Galyen to schedule a no-obligation, free, confidential consultation. We can review your situation and advise you about your options. Call us today at 800-208-3104 or reach us here. We look forward to helping you.