Perhaps the best feature of a personal bankruptcy is the opportunity to get a fresh start. That means discharging overwhelming debts that are eating up your monthly income, like medical bills and credit cards. It also means freeing yourself from lingering debts like an upside-down vehicle or underwater real estate. Since the housing bubble burst and real estate values have dramatically fallen, “walking away” from underwater property during bankruptcy is often your best option.
Surrendering real estate back to the lender during bankruptcy does not transfer ownership. That is accomplished by deed, either from the debtor to the bank, or by foreclosure. In the meantime, you own the property. Consequently, any real estate tax bill will be sent to you as the owner. Receiving this bill can cause great anxiety since the mail comes in your name.
Fortunately, the real estate tax debt belongs to the property, not to the person – it “runs with the land.” You are not personally obligated for the property taxes. This tax debt will be paid by the creditor after the creditor takes ownership. If your lender attempts to pressure you into paying a tax debt by “advancing” money to pay the debt, contact your bankruptcy attorney immediately. You are not obligated to pay real estate taxes for property you surrender in bankruptcy.
Transferring ownership of real estate during bankruptcy often takes time and the assistance of an experienced bankruptcy attorney. Your attorney will explain the process and act as your legal representative during the surrender process. Don’t be pressured into paying debts that are legally discharged! Learn your rights from your attorney and protect yourself with the power of the federal bankruptcy laws.