Tax Lien Enforcement Is Complicated By Bankruptcy

Problems can arise when filing for Bankruptcy.

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A recent case highlighted the problems that can arise when debtors file bankruptcy. The case is Rebuild America v. Davis decided by the Supreme Court of Appeals, West Virginia, No. 14-0432, opinion filed April 9, 2015. Although a West Virginia case, it may have application in other states since Bankruptcy law is Federal.

In this case, the debtors, Davis, were unable to pay their real estate taxes and a delinquency notice was published. They filed a Chapter 7 Bankruptcy and were subsequently discharged. During the course of their bankruptcy a second notice advising of a tax lien sale was sent to the Davis’, but it was returned as undeliverable. The tax sale was concluded after the debtors had received their discharge in bankruptcy. No one redeemed the property and a tax deed was issued to the purchaser.

Finally, the debtors took action. They filed suit to set aside the tax sale and the court ruled in their favor. The ruling was upheld on appeal with the appellate court holding that the bankruptcy stay rendered the statutory tax sale notice void ab initio and therefor the tax lien sale did not comply with the necessary statutory procedure. The tax deed was set aside.

When dealing with real property or other assets of substantial value, there is no substitute for doing your due diligence investigation and homework before taking action. Bankruptcy law trumps most collection procedures. In the Davis case, a delay in sending the required notices of only a few months, until after the bankruptcy discharge was granted, would have made a tremendous difference. The tax deed would have been affirmed.

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