1. Tax Sales & Bankruptcy - Buyer Beware
Robert W. Keyser
Taylor and Keyser LLC
89 Haddon Avenue, Suite B2
Haddonfield, NJ 08033
Michael J. Wilson
Michael J. Wilson & Associates, P.C.
309 West Washington Street
Suite 1200
Chicago, Illinois  60606

2. (35 ILCS 200/21-310) Sec. 21-310. Sales in error
(35 ILCS 200/21-310)      Sec  Sales in error.      (a) When, upon application of the county collector, the owner of the certificate of purchase, or a municipality which owns or has owned the property ordered sold, it appears to the satisfaction of the court which ordered the property sold that any of the following subsections are applicable, the court shall declare the sale to be a sale in error: 
(6) prior to the tax sale a voluntary or involuntary petition has been filed by or against the legal or beneficial owner of the property requesting relief under the provisions of 11 U.S.C. Chapter 7, 11, 12 or 13.

3. (35 ILCS 200/21-310)
Sec Sales in error.
(b) When, upon application of the owner of the certificate of purchase only, it appears to the satisfaction of the court which ordered the property sold that any of the following subsections are applicable, the court shall declare the sale to be a sale in error:          (1) A voluntary or involuntary petition under the provisions of 11 U.S.C. Chapter 7, 11, 12, or 13 has been filed subsequent to the tax sale and prior to the issuance of the tax deed.

4. 11 U.S.C. 1325
Section 1325(a)(5)(b) of United States Bankruptcy Code requires Chapter 13 plans to provide tax purchasers “the value, as of the effective date of the plan, of property to be distributed under the plan” in an amount “not less than the allowed amount of such claim.”
Till v. SCS Credit Corp., 541 U.S. 465 (2004) (Secured creditor is entitled to interest if plan payments are made over time.)
In re Cortner, 400 B.R. 608 (Bankr. S.D. Ohio 2009) (If the secured creditor holds a “tax claim” Section 522(a) of the Bankruptcy Code entitles the tax purchaser to receive interest at the rate “determined under applicable non-bankruptcy law.”)

5. 11 U.S.C. 362(a)(4)
Section 362(a)(4) of United States Bankruptcy Code provides that the filing of a bankruptcy petition automatically stays any act to enforce any lien against the property of the debtor’s estate.
Section 362 (c)(1) provides that the automatic stay remains in effect until the property is no longer part of the estate.
Section 362(d) provides that the bankruptcy court has power to terminate, annul, modify, or condition the stay when appropriate petition is filed.

6. When is the bankruptcy filed?
Before the municipal tax sale.
The Automatic Stay (Section 362 of the Bankruptcy Code) stays the sale. It cannot go forward. If you purchased a tax sale and it later turned out that the property owner was in bankruptcy prior to the sale date, your certificate is void. You should seek to have the selling municipality buy it back from you. Do this as soon as you learn, because you will not necessarily receive the interest rate on the Certificate back from the municipality.
C. NOTE: Actions taken in violation of the Automatic Stay are void. You can go through a complete foreclosure proceeding, never having learned of the bankruptcy filing, and completing your foreclosure. Your judgment is not valid, unless you can somehow get the bankruptcy court to grant stay relief back to the beginning of the case (“nunc pro tunc”). It is difficult, but not impossible.
After you purchased the Certificate, but before or during the foreclosure process.
You are stopped (stayed ) from proceeding with your collection proceedings, unless you obtain relief from the automatic stay. This is not a real possibility at the outset of a bankruptcy filing, since the Court will give the debtor quite a while to get their stuff together. But see Chapter 7 proceedings below. Relief may be possible once the debtor is into the case.

7. II. What steps do you take once you learn that your property owner has filed a bankruptcy petition? Generally, file a Proof of Claim. The form of the proof of claim will depend upon the type of bankruptcy filed.
C. Chapter 13. This is the most complex proof of claim. Unaccrued interest is never supposed to be included in a proof of claim. However, the Chapter Thirteen trustees in New Jersey lack the ability and the resources to calculate interest on a proof of claim since the lienholder is entitled to interest on its claim at the rate fixed by State law. As a result, you should calculate the amount due as of the filing date and also calculate the amortized rate of interest to be payable over the course of the proposed plan (this is the figure that appears in the claim) and specifically itemize each aspect .
If you paid a premium for your certificate, this amount should never be included in the claim calculation.
A. Chapter 7. Usually individual. The vast majority are “no asset” filings. That means there will be no distribution to creditors. You do not file a proof of claim. The original Notice that you receive will tell you not to file. NOTE: most Chapter 7 filings are completed within three to four months. Best to wait it out and then proceed in State court when the case is closed.
B. Chapter 11 or Asset Chapter 7. File a proof of claim (using the Official Form). Attach the Certificate and Assignments (if any). Show a redemption calculation for the date of the bankruptcy filing. Indicate that interest will continue to accrue until the actual date of redemption. Generally that figure will be supplied by the Tax Collector. Include counsel fees and costs as provided by Court Rules.

8. You want to be proactive. Relief from the Automatic Stay
Many (most) Chapter 13 or Chapter 11 debtors do not pay property taxes after they file the petition in bankruptcy (referred to as “post-petition taxes”). This failure to pay taxes is a violation of the Bankruptcy Code, in addition to allowing a lien to be created that has priority over your tax lien. You should make it a practice to monitor the payment of taxes by your debtor, checking a couple of weeks after the quarterly due date. If non-payment continues for two or more quarters, instruct your attorney to file for relief from the Automatic Stay. This is a “no lose” motion. Either you obtain relief and you can proceed with enforcement of your lien in State court, or the debtor will pay the taxes, and you will obtain an Order that ensures that if it happens again, you will not have to file another motion. You will just have to certify to the Court that there is a default in the Order. Plus you can generally recover some of the motion costs and counsel from the debtor.
NOTE: Do not pay post-petition taxes after your proof of claim is filed. It changes the amount of your claim, meaning you won’t be paid in full by the Plan. If post-petition taxes are not being paid, use the stay relief motion described above.

9. Current Illinois Tax Sale Issues in Bankruptcy Cases
Fraudulent Transfer
Time in which Bankruptcy Petition can be filed to prevent loss of property to Tax Deed.
Cook County Partial Redemptions

10. Fraudulent Transfers
Can a Tax Deed be set aside as a fraudulent transfer pursuant to 11 U.S.C. Section 548?
BFP v. Resolution Trust Corp., 511 U.S. 531, 114 S.Ct (1994)
Smith v SIPI, LLC, 811 F.3d 228 (7th Cir. Ill. 2016)

11. Time in which bankruptcy petition can be filed to prevent loss of property to a Tax Deed
In re Robinson, 577 B.R. 294 (N.D. Ill. Dec )

12. Cook County Partial Redemptions

15. You have taken title. The former owner has filed for bankruptcy and the debtor filed an adversary proceeding seeking to undo the transfer both as a preference and as a fraudulent conveyance.
The Statutes:
11 U.S.C. 547(b), states:
(b) Except as provided in subsections (c) and (i) of this section, the trustee may avoid any transfer of an interest of the debtor in property –
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made -
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if -
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

16. The Statutes: (Continued)
11 U.S.C. 548, states:
(a)(1) The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily -
(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(ii)(I) was insolvent on the date that such transfer was
made or such obligation was incurred, or became insolvent as a result of such transfer or obligation.

17. What does this really mean
What does this really mean? You are at risk if you recover a property that is worth more than your lien redemption. The larger the difference, the greater the risk.
Legal Issues, or how do you defend the action?
Valuation question – how much is the property actually worth? Debtors invariably will overvalue the property. Generally established by appraisal.
Was the transfer made while the debtor was insolvent, or was the debtor rendered insolvent by the transfer? This can be made an issue if the debtor owns a number of properties or has other assets. It is not as useful if your foreclosure divested the debtor of its major asset.
For whom is the recovery being sought? There has to be an “estate” with other creditors (meaning other than you). If the recovery will only benefit the debtor, or (for example) a mortgage holder who was foreclosed, you may be able to defeat the action. The recovery in a fraudulent transfer or preference action must benefit unsecured creditors.
What is the possible recovery for the Debtor? Either a return of the property (you will have to be redeemed) or a monetary award based upon the difference between the redemption amount and the value of the property.