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Government Interest Rate Applies When Curing in Chapter 13 a Property Tax Default Owed to a Private Party: NDNY Meyhoefer

A bankruptcy court in Syracuse ruled that, in chapter 13, the interest rate owed to a private purchaser of a property tax lien is the same as the government interest rate. In re Meyhoefer, Bankruptcy Court Northern District of New York chapter 13 #10-33272; Hon. Margaret Cangilos-Ruiz decision June 27, 2011.

In chapter 13, secured claims being paid through the plan normally receive a "till" rate of interest on that claim, named after the U.S. Supreme Court decision Till v. SCS Credit Corp., 541 U.S. 465 (2004). Locally, the current "Till" interest rate is 5.25%. But Bankruptcy Code Section 511(a) requires payment of the statutory interest rate when paying tax claims. In most counties in New York, property taxes accrue 12% interest until paid. Monroe County (Rochester) and Erie County (Buffalo) charge 18% interest on unpaid property taxes.

In this case, Onondaga County's property tax lien was sold off to a private entity, American Tax Funding LLC. The debtor filed a chapter 13 to cure their property tax default to this private creditor, and the creditor wanted to be paid Onondaga County's 12% interest rate, rather than a much-lower "Till" interest rate.

In a detailed opinion, the court concluded that this lien was still a tax claim, as that term is used in Section 511(a), and that the creditor was entitled to the statutory interest rate.

Stopping a tax foreclosure through a chapter 13 bankruptcy action is a complicated and delicate situation, as this case shows. If you are in a tax foreclosure and wish to see if a bankruptcy can stop the process and allow you to cure the default, please see the chapter 13 page of my web site. You may also contact me for a phone consultation of your situation, at no charge.

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