In re Van

612 B.R. 893

IN RE: Joseph VAN, Debtor.

No. 16 B 19075

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Dated: January 13, 2020

Attorney for debtor Joseph Van: Mary Ann Leuthner, Prairie State Legal Services, Wheaton, IL

Attorney for Gwen Henry, DuPage County Treasurer: Robert B. Berlin, State's Attorney, Barbara Q. Reynolds, Assistant State's Attorney, Wheaton, IL

MEMORANDUM OPINION

A. Benjamin Goldgar Chief United States Bankruptcy Judge

Before the court for ruling is chapter 13 debtor Joseph Van's objection to the amended claim of DuPage County Treasurer Gwen Henry for 2012-15 property taxes. The claim (No. 5-1) amended an earlier claim that sought payment only of the 2015 taxes. The Treasurer amended her claim because the 2012-14 taxes had been sold – but the state court had issued declarations of sales in error, and the Treasurer had repaid the tax purchasers. So in her amended claim the Treasurer added the 2012-14 taxes to her original claim, increasing the claim amount and demanding 18 percent interest. The Treasurer's problem: not only had the bar date long passed, but two and a half years earlier Van had confirmed a plan that paid the 2012-14 taxes in a lower amount with no interest. The Treasurer had notice of the plan and did not object.

As discussed below, the Treasurer's amended claim is late and is barred. The Treasurer is bound by the confirmed plan. Van's objection will be sustained and the amended claim disallowed.

1. Jurisdiction

The court has subject matter jurisdiction of this case under 28 U.S.C. § 1334(a) and the district court's Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(B).

2. Facts

The facts are drawn from Van's schedules in the bankruptcy case, the court's docket and claim register, and the parties' papers.¹ No facts are in dispute.

a. Van and his Property

Van is 63 and lives with a roommate in a house in West Chicago, Illinois. Van has a one-fifth interest in the property: he and his brother and three sisters inherited it from their mother. (The brother and the sisters live elsewhere.) Van is unemployed. He subsists on Social Security, food stamps, and rent from the roommate.

West Chicago is in DuPage County. Van's house is subject to property taxes that DuPage County imposes annually.

b. The Illinois Property Tax Collection System

Illinois employs a complex system for collecting property taxes. Because that system is described extensively elsewhere, see In re LaMont , 740 F.3d 397, 400-01 (7th Cir. 2014) ; In re Commings , 297 B.R. 701, 703-05 (Bankr. N.D. Ill. 2003) ; IICLE, Real Estate Taxation (2016), only a brief outline is needed here.

Each year on January 1, Illinois counties levy taxes on real property, and a lien securing payment of the taxes attaches to each owner's property. LaMont , 740 F.3d at 400. The taxes themselves are due the year after they are levied; the lien, on the other hand, arises right away. Id. In Illinois counties other than Cook, property taxes are paid in two installments. The first is due on June 1, the second on September 1. 35 ILCS 200/21-15. If the owner pays the taxes, the county's lien is extinguished. LaMont , 740 F.3d at 400 ; Commings , 297 B.R. at 704 ; IICLE, supra , § 10.5. If he does not, the county can recover the unpaid taxes through several kinds of "tax sales." LaMont , 740 F.3d at 400 ; Commings , 297 B.R. at 704.

Of these, the most common is the "annual tax sale." Commings , 297 B.R. at 704 ; see generally 35 ILCS 200/21-190 to -255. After the county collector applies for and receives from the state court a judgment and order of sale, 35 ILCS 200/21-175, the county offers the delinquent taxpayer's property for sale at a public auction, 35 ILCS 200/21-190.² But prospective purchasers at the auction do not bid the value of the property, and the winning bidder does not acquire the property itself. Purchasers instead bid the "amount due" on the property – the delinquent taxes plus fees and accrued interest – along with a penalty. 35 ILCS 200/21-215 ; IICLE, supra, § 10.27 at 10-25. On paying that amount, the successful bidder receives a "certificate of purchase," 35 ILCS 21-250; IICLE, supra , § 10.29 at 10-29, 10-31, entitling him either to reimbursement of the amount paid or to a deed. In effect, the county's lien "shifts" to the purchaser. Commings , 297 B.R. at 704.

Despite his victory at the auction, the purchaser cannot enforce the lien immediately. The taxpayer still has a chance to "redeem" the property. 35 ILCS 200/21-345. During the next two years, 35 ILCS 200/21-350(a), or two and a half years if the property is a residence, 35 ILCS 200-350(b), the taxpayer can pay to the county clerk whatever the purchaser paid at the sale, plus interest and other fees and charges, 35 ILCS 200/21-355. The clerk will then repay the purchaser. A.P. Props., Inc. v. Goshinsky , 186 Ill. 2d 524, 530, 239 Ill.Dec. 600, 714 N.E.2d 519, 522 (1999). The repayment releases the purchaser's claim against the property. 35 ILCS 200/21-390.

If the taxpayer has not redeemed the property, then shortly before the redemption period ends the purchaser may petition the state court for a tax deed. 35 ILCS 200/22-30 ; LaMont , 740 F.3d at 401 ; IICLE, supra , § 10.68. If he does, and if the state court finds all statutory requirements are met, the court will order the county clerk to issue a tax deed to the purchaser. 35 ILCS 200/22-40(a). The purchaser will come away with "incontestable, merchantable title to the property." Commings , 297 B.R. at 705.

But sometimes the purchaser has "another option." LaMont , 740 F.3d at 401. Rather than seek a tax deed, he can apply to the state court for a declaration that the sale of the delinquent taxes was a "sale in error." 35 ILCS 200/21-310. The sale may have been "in error" for any of several statutorily prescribed reasons. Id. One is that either before the sale, or after the sale but before a tax deed was issued, the taxpayer petitioned for relief under the Bankruptcy Code. 35 ILCS 200/21-310(a)(6), (b)(1) ; see also IICLE, supra , §§ 10.30 at 10-34, 10.56.

If the court declares a "sale in error," the purchaser surrenders the certificate of purchase, and the county refunds the price paid at the sale, plus interest and costs, 35 ILCS 200/21-310(b), (d) ; see IICLE, supra , §§ 10.30 at 10-37, 10.63 at 10-73. At that point, the county resumes its claim for the unpaid taxes and again has a lien against the property. See In re Bates , 270 B.R. 455, 460 (Bankr. N.D. Ill. 2001) (stating that after a sale in error "the property (and the landowner) are again subject to liability for the unpaid taxes"); IICLE, supra , § 10.30 at 10-37.

c. The Delinquent Property Taxes and the Bankruptcy Case

From 2012 through 2015, Van failed to pay the property taxes due on the West Chicago house. DuPage County sold taxes for three of the four years.

• The 2012 and 2013 taxes together totaled $10,335.07. The first installments were due on June 1, 2013, and June 1, 2014, respectively, and the second installments on September 1, 2013, and September 1, 2014. Van did not pay either installment for either year. In November 2013, the County sold the unpaid 2012 taxes to Union Tax Investors. In November 2014, the County sold the unpaid 2013 taxes to Union Tax Investors.

• The 2014 taxes came to $4,220.72. The first installment was due on June 1, 2015, and the second on September 1, 2015. Van did not pay either installment. In November 2015, the County sold the unpaid 2014 taxes to Jolene M. Papendick.

• The 2015 taxes came to $2,998.42. The first installment was due June 1, 2016. Van did not pay it.

On June 9, 2016, before the second installment for 2015 came due (and so before the County could sell the taxes), Van filed this chapter 13 bankruptcy case.

The purpose of the case was to keep the West Chicago house and pay the delinquent taxes over time.³ In his schedules, Van listed the County Clerk as a secured creditor for the 2012-14 taxes and the tax purchasers as additional "notice parties." He listed the County Treasurer as a secured creditor for the 2015 taxes. Van proposed a plan in which he would make monthly payments of $390.91 for 60 months. From that amount, he would pay the 2015 taxes (listed as $2,954.43) to the Treasurer with 12 percent interest. Once the 2015 taxes were paid, he would pay the 2012-14 taxes to the County Clerk without interest. Unsecured claims (which he estimated at $2,179) would be paid in full.⁴ The bar date for creditors to file claims was October 17, 2016.

The Treasurer filed a timely claim for the 2015 taxes but listed $2,998.42 as the amount of the claim and also sought interest of 18 percent. She also objected to confirmation of Van's plan because, she said, the 2015 tax figure and proposed interest rate were too low. The Treasurer did not file a claim for the 2012-14 taxes and did not object to the plan's treatment of those taxes. The tax purchasers, Union Tax Investors and Papendick, did not file claims for those taxes either and did not object to confirmation.

Some months later, Van proposed an amended plan that answered the Treasurer's objection. Van increased the 2015 taxes and the interest rate to the Treasurer's figures. He also changed the payment terms to have the tax claims paid one at a time: the 2015 taxes would be paid first, then the 2012-13 taxes, and then the 2014 taxes. Because Union Tax Investors and Papendick still had not filed claims, Van filed claims on their behalf in the amounts and with the interest rates shown in the plan. Both claims instructed the chapter 13 trustee to make payments to the Clerk.

Neither the Treasurer, Union Tax Investors, Papendick, nor any other creditor objected to confirmation of the amended plan, and in November 2016 the plan was confirmed. Since then, Van has made all of his monthly plan payments.

Meanwhile, Union Tax Investors had petitioned for an order declaring sales in error because of Van's bankruptcy. In August 2017,...