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Bankruptcy courts divided on whether Chapter 13 plan extends time for redemption

By Jeremy Retherford on July 14, 2016
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Bankruptcy courts are currently divided on whether a debtor has a right to redeem property sold at a tax sale after the redemption period has run. The time for redemption depends on the law of the state where the property is located.  In Alabama, for example, the statutory redemption period is three (3) years. Usually, a debtor must redeem by paying the full amount within the redemption period or be time barred. However, recent bankruptcy cases in Pennsylvania allowed debtors to treat tax purchasers as secured creditors, thereby permitting the debtors to pay the redemption amount as a secured claim over the life of a confirmed chapter 13 plan. See In re Gonzalez, Case No. 15-10628 (Bankr. E.D. Pa. May 18, 2016); In re Pittman, Case No. 14-17665 (Bankr. E.D. Pa. May 6, 2016). In these cases, the debtors filed chapter 13 petitions before the right of redemption expired under local law, but confirmation of their chapter 13 plans did not occur until after the redemption period would have expired. The rationale for this treatment is based on the view that a debtor’s right to redeem property after a tax sale resembles a mortgagor / mortgagee relationship with the tax purchaser. The opposing view—expressed by a California bankruptcy judge last year In re Richter, 525 B.R. 735 (Bankr. C.D. Cal. 2015)—is that the right of redemption following a tax sale is an asset of the debtor, rather than a claim. Until this issue is resolved by higher courts, tax sale purchasers should consult the law of their local jurisdiction so that they are not left waiting for years while a Chapter 13 debtor repays the redemption amount.

 

Photo of Jeremy Retherford Jeremy Retherford
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  • Posted in:
    Tax
  • Blog:
    Southeast Financial Litigation Monitor
  • Organization:
    Balch & Bingham LLP

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