As reported two weeks ago, the bankruptcy exemption bill, S. 7034, was passed by both houses of the legislature, but was being held up pending passage of a new bill, S. 8451, which exempts New York State and its municipalities from the new $4,000 judgment debtor car exemption. Why the new bill? New York City Mayor Michael Bloomberg blasted the bankruptcy exemption bill in late July, fearing that parking scofflaws will no longer be worried that their car might be towed. The mayor estimated that New York would lose $50 million in revenue and enforcement of parking scofflaws would come to a halt (see this New York Daily News article on the mayor's reaction, July 26, 2010.) Political considerations may have had a part as well. The New York State Senate sponsor of the bankruptcy exemption bill, Senator Eric Schneiderman, is a Democratic candidate for Attorney General, and Mayor Bloomberg is supporting a republican rival.Apparently the issue was resolved quickly. According to a Vos Iz Neias blog, the mayor blasted the bill at a news conference on the morning of July 26, hours after the Daily News article was posted. The Daily News then reported that, by that afternoon, the Mayor and Senator Schneiderman had settled their differences and issued this statement:"We are pleased to report that we have reached agreement on a chapter amendment to the legislation that ensures the City's successful scofflaw towing program will remain intact. The chapter amendment will be introduced today and taken up by the Senate when it next considers legislative items. The underlying bill will not be sent to the Governor until this issue has been resolved."Since then the Senate passed the new bill limiting the vehicle exemption (S. 8451, introduced July 26 and passed Aug. 3) and Assemblywoman Helene Weinstein, the long-time Assembly sponsor of the bill to update bankruptcy exemptions, has introduced the measure in the Assembly (A.11677.) The Assembly must meet before the bill can be passed, and, as of today, nobody knows when the Assembly will meet next in this, an election year. I understand that the Assembly is now, as a legal matter, 'at the call of the Speaker', and it is quite possible it may be called back into session before the election.Assuming the new bill regarding the car exemption is passed by the Assembly, both bills will be sent to the Governor for action, either for passage or veto. The position of the Governor on the issue is unknown. Supporters of the bankruptcy exemption bill are encouraged to write to the Governor's office and submit their comments.
Bankruptcy Code section 511, enacted in 2005 as part of BAPCPA, requires secured tax claims to be paid statutory interest rates in a Chapter 13 case. In Monroe County, New York, the statutory interest rate for delinquent property taxes is 18%. So, if a property owner in Monroe County files a chapter 13 case, and owes back property taxes, the Monroe County tax claim is paid 18% interest in the plan. Other secured claims are paid the "Till" rate, now running at 5.25%. The difference is, obviously, significant.But what if the holder of the property tax lien is a private party? Monroe County regularly sells off its older tax claims these days to private entities such as American Tax Funding, pursuant to the local Monroe County Tax Act Chapters 440 and 441 and New York Real Property Tax Law Article 11, Title 5 (RPTL Sect. 1190 et seq.). Are the private holders of the county tax liens entitled to the same 18% interest in a chapter 13?I have not researched the Monroe County local law, and I am not an expert on sale of property tax liens. There are no reported New York bankruptcy court decisions on the issue of Bankruptcy Code Section 511. My understanding is that the Chapter 13 trustee in the Rochester Division of the Bankruptcy Court for the Western District of New York treats property tax liens held by private parties the same as publically-held liens and requires the same 18% interest rate for Monroe County delinquent tax liens. However, two recent cases from New Jersey held that, under New Jersey law, private holders of tax claims were not entitled to statutory interest rate in chapter 13, and the reasoning might apply in New York as well.The most recent decision, In re Burch (Bankr D. N. J.; chap. 13 10-11360; Judge Wizmur; decision July 15, 2010) follows a Chapter 11 decision reached a few months earlier (In Re Princeton Office Park LLP; Bankr. D. N. J.; 423 BR 795; Judge Kaplan decision Feb. 17, 2010.) Princeton Office Park stated the issue as follows: "because the taxes have already been paid to the Township, is the lien that [the private party] holds a "tax lien," and therefore a "tax claim" under the Code, or is it simply another statutory lien that would fall outside the scope of §511(a)." Princeton Office Park, 423 BR at 801. Burch, like Princeton Office Park, concluded that by paying off the underlying property tax, the private party purchased the tax lien is no longer a "tax claim", as that term is used in sect. 511. These two decisions set out various differences in the enforcement of privately-held tax liens and government-held liens under state law. In New Jersey, a tax certificate holder's lien is subject to later municipal tax liens, while government-held liens are not. Privately-held lien must be recorded in New Jersey, or else they are not perfected against bona-fied purchasers; government-held property tax liens do not have to be recorded. The New Jersey statute states the property owner may redeem the privately-held certificate by paying "the sum paid at the [tax lien] sale", while government-held liens are redeemed by paying the "unpaid taxes."I note that in New York private holders of delinquent property tax liens must use the same foreclosure process utilized by mortgage holders to enforce their lien (RPT 1194), rather than the in rem tax foreclosure procedure available to government tax authorities (RPT 1120 et seq.) And privately-held tax liens are recorded, while municipal tax liens are not. There are very few cases on this issue, and all of them are in New Jersey, Texas and Ohio. Each court interpreted the tax code of its individual state. In Texas, a split among bankruptcy courts (In Re Davis, 352 BR 651, Bky. N. D. Tex. 2006; In re Sheffield, 390 BR 302 (Bky. S. D. Tex. 2008; In re Prevo, 393 BR 464, Bky. S. D. Tex. 2008; In re Kizzee-Jordan, 399 BR 817, Bky. S. D. Tex. 2009) was resolved by a District Court decision on Sept. 28, 2009 (Kizzie-Jordan, 2009 U.S. Dist. LEXIS 89747 (S. D. Tex. Sept. 28, 2009). Interpreting Texas law, the District Court concluded that a tax claim is a debt originally owed to a governmental unit for property taxes. There is one case out of Ohio, In re Curtney, 400 BR 608 (Bky. S. D. Ohio 2009), which determined that, under Ohio law, a purchaser of a property tax lien also acquires "the superior lien of the state" and, so, the privately-held lien is a tax claim for the purposes of Sect. 511.Is New York law more similar to New Jersey or to the laws of Texas or Ohio? Or none of the above? At a minimum, a chapter 13 debtor could make a good-faith argument, pursuant to the two recent New Jersey cases, that privately-held tax liens in Monroe County, NY are not entitled to the statutory tax rate provisions of Bankruptcy Code Section 511.
As previously reported, both the New York State Assembly and the Senate have passed S. 7034, a bill that updates and modernizes bankruptcy exemptions. The bill has not yet been submitted to the Governor for signature. According to a person in the office of Senator Eric T. Schneiderman, the Senate sponsor for the bill, a companion bill, S. 8451, must pass the Assembly so that both can be submitted to the Governor together.
This is a continuation of my first blog on the history of New York bankruptcy and judgment debtor exemptions, which went up to the exemption statutes through 1824, which were brought together into one section when New Uork consolidated its statutes in 1829.
In Re Wisotzke 392 B.R. 39 (Bky.W.D.N.Y. 2008) (Chapter 13 bk 08-21178; Judge Ninfo; decision August 14, 2008) The debtor filed a chapter 13 petition the day that Ontario County, NY, was selling his residence in a tax foreclosure sale. The County argued that the debtor no longer had any interest in the property (or, as a bankruptcy attorney would put it, that the real estate was no longer "property of the bankruptcy estate" under 11 USC Sect. 541).