Tax Law Blog

Dischargeability of Personal Property Tax in Chapter 7 Bankruptcy

Bankruptcy statute 11 USC §524(a) prohibits the collection of debts that are discharged in a bankruptcy case. However, this does not apply to nondischargeable debts, which can be collected after a debtor receives a discharge, but not during a pending bankruptcy when the automatic stay under 11 USC §362 is in effect.

Dischargeability of personal property taxes varies on the type of bankruptcy case (or chapter). In a Chapter 7, unsecured priority personal property taxes are nondischargeable if:

1. the personal property taxes were assessed before the date the bankruptcy case was filed; and
2. the taxes were last payable without penalty after  one year before the date of the bankruptcy filing.

For example, if the debtor filed for bankruptcy relief on February 1, 2012, the personal property taxes were assessed on December 1, 2009, and were last payable without penalty on February 16, 2011, the personal property taxes are not dischargeable. The personal property taxes are not dischargeable because the taxes were incurred prior to the bankruptcy filing on February 1, 2012, and they were last payable without penalty on February 16, 2011 – which is after one year before the date of the bankruptcy filing.

Notably, personal property taxes that are assessed after a debtor files for bankruptcy relief are not affected by the bankruptcy proceeding, and may be pursued in the usual fashion.

Categories: Personal Property Tax