Catching up on property taxes benefits both you and your mortgage lender. Chapter 13 helps you pull this off under much less pressure.
Slipping Behind on Property Taxes
If you’ve fallen behind on your mortgage payments, you’ve likely also fallen behind on your property taxes.
You may be required to pay those taxes as part of your mortgage payment. So not paying the mortgage automatically means you’re not paying the property taxes.
Or you may be supposed to pay the property taxes directly, separate from your mortgage. So you’ve not paid the property taxes because the mortgage lender is much quicker to complain and makes more noise if you don’t pay the mortgage. So you pay that as much as you can instead of the property taxes.
Either way you fall behind on the property taxes. So how to solve this problem?
Some Help from Chapter 7 “Straight Bankruptcy”
Two blog posts ago we explained how Chapter 7 can enable people to keep their home as long as they can catch up on their unpaid mortgage payments within a few months after filing their bankruptcy case.
That’s all the harder if you are also behind on property taxes.
But in some situations, the filing of a Chapter 7 case allows a homeowner to stop paying a lot of money each month to other creditors, freeing that money to be paid towards the unpaid mortgage and property taxes.
Your Mortgage Lender’s Harsh Leverage
The problem is the impatience of your mortgage lender.
Usually a foreclosure by a property tax agency does not happen until a number of years after you don’t pay a property tax bill. So you’d think you’d have years to get current.
Maybe so if you own the property free and clear of a mortgage.
But not if you have a mortgage. In the reams of paperwork you signed when you got the mortgage you promised your mortgage lender that you would always keep current on the property taxes. So if you don’t, that’s a breach of your mortgage loan. It gives your lender a separate justification for foreclosing on your home, regardless whether or not you are current on the mortgage payments themselves.
Chapter 13 “Adjustment of Debts” Buys Much More Time
A Chapter 13 payment plan gives you time to catch up on your property taxes. And it keeps your mortgage lender off your back while you do so.
Our last blog post showed how Chapter 13 can usually give you as long as 5 years to catch up on missed mortgage payments. Same thing with back property taxes. And same thing if you are behind on both.
Stretching out the catch-up period that long reduces how much you have to pay monthly, on the property taxes or on both the property taxes and the mortgage. That makes catching up easier. If you are far behind, it may make the otherwise impossible become possible.
Chapter 13 Protects Your Home
Chapter 13 cases usually last 3 to 5 years. If you follow the payment plan that you and your lawyer propose and the bankruptcy judge approves, throughout that time you and your home are protected from foreclosure and other collection activity.
This protection applies both to the property tax creditor and to your mortgage lender. You do need to keep current on new tax years and on new mortgage payments as they come due. And you do need to make your “plan payments” so that you are making progress on the past due property taxes (and mortgage payments, if you’re behind on them, too). Or you could lose this protection and this opportunity to get current over time.
Flexibility under Chapter 13
Although Chapter 13 gives you as long as 5 years to catch up on your property taxes, often you’d be able to pay your back property taxes more quickly. That’s because in your Chapter 13 plan you can usually delay paying other creditors while you first catch up on the property taxes. That’s helpful because property taxes tend to have high interest. Besides saving you on interest, you build equity in your home, and satisfy your mortgage lender more quickly.
Chapter 13 is also a particularly good option if you have other liens against the home, such as a second mortgage, or liens for income taxes, for child or spousal support, for a judgment, or just about any other lien. More about those in our upcoming blog posts.