Bankruptcy Claims of Illinois Tax Purchasers After Expiration of the Redemption Period and Before Recording of the Tax Deed

Abstract

In Illinois, if real property owners fail to timely pay their property taxes, the county conducts a sale of the delinquent taxes to third parties. In such property tax sales, the county receives the amount of the taxes due and shifts the payment risk to a third-party “tax purchaser.” In exchange, the tax purchaser receives a “Certificate of Purchase” that entitles the holder to repayment of the amount of delinquent taxes paid to the county plus interest, and costs, fees and penalties set by statute. Additionally, a contingent right is conveyed to the tax purchaser who purchased the delinquent taxes: should the property owner fail to redeem the delinquency by the statutorily-determined deadline, the tax purchaser may petition an Illinois court to order the county to issue a tax deed. For more than 15 years, bankruptcy courts applying Illinois law treated the redemption deadline as demarcating the debtor’s right to treat the redemption amount as a claim in a bankruptcy plan. But two Seventh Circuit holdings over the past decade abrogated the previous approach that recognized a distinction before and after the redemption deadline. The consequent appeals court jurisprudence has shifted the focus to the recording date of the tax deed. As recently as April 2019, the Bankruptcy Court in the Northern District of Illinois declined a tax purchaser’s request to reconsider and reverse the revised approach. Consequently, Illinois tax purchasers should expect courts to allow chapter 13 debtors to treat delinquent taxes underlying a Certificate of Purchase as a claim in a bankruptcy plan — even after the statutory period to redeem the delinquent taxes has expired.