Are Property Taxes Considered Debts Included in Bankruptcy

| Category: Debts In Bankruptcy
Category: Debts In Bankruptcy | Leave a comment

Whether or not property taxes are discharged by filing bankruptcy is not a simple question. The answer is:  it depends. The difference lies in whether or not your outstanding property taxes remain a charge against the property.
Are property taxes included in bankruptcy in Ontario
Let’s expand on that with a couple of examples.

Scenario 1: Giving Up Your Home

Example one is John, who lost his job and then ran out of Employment Insurance benefits.  It became impossible for him to continue payments on his mortgage, property taxes and other bills, and unfortunately his mortgage bank has taken the house under ‘power of sale’.  This means the bank will sell the house and essentially send him a bill for any shortfall.  After going over all of his options, John chooses to file personal bankruptcy to protect himself.

In John’s case, since he no longer owns the home, any shortfall after paying property taxes, selling costs and the remaining mortgage, is now an unsecured claim that is included in, and will be discharged by, his bankruptcy.

Scenario 2: Keeping Your Home

The second example is Mary.  She has a mortgage as well but her issue is that her credit card debts became high and impossible to pay after she was off work with an illness.  She’s back working now but cannot pay her credit cards.  She looks at all her options and decides to file an assignment in bankruptcy as well.  She is able to prove there is no equity in the house and that she can pay the mortgage going forward, so keeps the house.

In Mary’s case, because she is keeping the house, she must continue to pay her property taxes.  The mortgage bank cannot take the house under power of sale just because she files bankruptcy, they’d have to show a breach of contract, so if she pays the mortgage payments and any property taxes owing, they will be fine with it.

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About Joel Sandwith

Joel Sandwith is a Licensed Insolvency Trustee with Hoyes, Michalos & Associates Inc. in London and Sarnia, Ontario. Before joining Hoyes, Michalos in 2009, Joel worked as a Credit Counsellor for Family Services Thames Valley. He brings a wealth of credit counselling and debt management experience to finding solutions for the people he helps get out of debt.

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