Courts are divided as to whether statutory redemption periods are stayed by Section 362(a) of the Bankruptcy Code.  There are also competing views as to impact of the post-petition expiration of a redemption period on property of the estate, including, for example, whether a tax purchaser holds a claim treatable in bankruptcy through a Chapter 11 or 13 plan.  This memorandum details these divergent views.

The Automatic Stay:

It has been held that if the automatic stay of Section 362 were found to prevail over Section 108(b) of the Bankruptcy Code, then the effect would be to enlarge property rights granted and circumscribed by state law, thus rendering the pertinent time allotment of Section 108 unnecessary.  Johnson v. First National Bank, 719 F.2d 270 (8th Cir.1983), cert. denied, 465 U.S. 1012 (1984); and Counties Contracting & Constr. Co. v. Constitution Life Ins. Co., 855 F.2d 1054 (3rd Cir.1988).  However, specific statutory references, such as those referring to redemptions in Section 108, are held to control over those which are general, such as the general provisions of Section 362(a).  In re Farmer, 81 B.R. 857, 861 (Bankr. E.D.Pa. 1988).  Accordingly, a number of courts have found that Section 362(a) does not toll the running of the time period for redemption and that the only available extension of time for such periods is the 60 days provided in Section 108(b).  See, Johnson v. First National Bank Montevideo, Minn., 719 F.2d 270 (8th Cir. 1983); In re Martinson, 731 F.2d 543 (8th Cir.1984); In re Carver, 828 F.2d 463, 464 (8th Cir. 1987); In re Whispering Bay Campground, 850 F.2d 443, 446 (8th Cir. 1988); Counties Contracting, 855 F.2d at 1059; Bank of Commonwealth v. Bevan, 13 B.R. 989 (E.D.Mich. 1981); In re Lally, 51 B.R. 204 (N.D.Iowa 1985); In re Tabor, 65 B.R. 42 (N.D.Ohio 1986); In re Josephs, 97 B.R. 151 (N.D.Ill. 1988); Cash America Pawn, L.P. v. Murph, 209 B.R. 419 (E.D.Tex. 1997); In re Markee, 31 B.R. 429 (Bankr. D.Idaho 1983); In re Hand 52 B.R. 65 (Bankr. M.D.Fla. 1985); In re Roberson, 53 B.R. 37 (Bankr. M.D.Fla. 1985); First National Bank of Vermont v. L.H.&A. Realty Co, 57 B.R. 265 (Bankr. D.Vt. 1986); In re Brown, 73 B.R. 306 (Bankr. D.N.J. 1987); In re Liddle, 75 B.R. 4l (Bankr. D.Mont. 1987); In re Davenport, 268 B.R. 159 (Bankr. N.D.Ill. 2001); and In re Snowden, 352 B.R. 848 (Bankr. N.D.Ill. 2006).

The Sixth Circuit and numerous Michigan courts have determined that only Section 108(b) of the Bankruptcy Code automatically extends the statutory redemption period.  In re Glenn 760 F.2d 1428, 1440 (6th Cir.) cert. denied, 474 U.S. 849 (1985) (holding that the presence of Section 108(b) in the Bankruptcy Code expressly grants an automatic extension of the statutory redemption period and Sections 362 and 105(a) do not apply).  In In re Young, 48 B.R. 678, 680 (Bankr. E.D.Mich. 1985), a potato farmer who filed a petition under chapter 11 with two days remaining on his one-year statutory right of redemption from a mortgage foreclosure sale of his farm, filed a complaint with the bankruptcy court seeking a determination that the statutory redemption period was extended 60 days from the petition date.  Relying upon the Sixth Circuit Court of Appeals decision in Glenn, the court held that upon the filing of the bankruptcy petition, the time for redeeming the property from foreclosure was automatically extended by Section 108(b).  See, In re Rutterbush, 34 B.R. 101, 102 (D.C.Mich. 1982) (section 108(b) is clear Congressional command that rights of redemption purchaser can be stayed for no longer than sixty (60) days); Matter of Sabec, 137 B.R. 659, 669 n.20 (Bankr. W.D.Mich. 1992) (tolling of redemption period, in appropriate factual circumstances, occurs by operation of law under section 108(b) of the Bankruptcy Code); In re Owens, 27 B.R. 946, 950 (Bankr. Mich. 1983) (upon filing of bankruptcy petitions, debtors have minimum of 60 days to redeem property of debtors as to which debtors have right of redemption under judgment of foreclosure, even if statutory period of redemption were to expire in less time).  The second line of cases, the minority position, suggest that the all-encompassing nature of Section 362(a) overrides the specific extension of time granted in Section 108(b), thus preventing the parties from taking any action with respect to estate property.  These cases suggest that the property will remain property of the estate even after the expiration of the 60-day add-on redemption period.  See, In re Johnson, 8 B.R. 371 (Bankr. D.Minn. 1981); In re Dohm, 14 B.R. 701 (Bankr. N.D.Ill. 1981); In re Jenkins, 19 B.R. 105 (D.Col. 1982); In re Sapphire Investments, 19 B.R. 492 (Bankr. D.Ariz. 1982); and In re Shea Realty, Inc, 21 B.R. 790 (Bankr. D.Vt. 1982).

Finally, In re Psychiatric Hospitals of Hernando, Inc., 243 B.R. 524 (Bankr. M.D.Fla. 1999) has concluded that Section 108(b) does not extend the debtor’s right to redeem a mortgage for 60 days.  The court noted that “[s]ection 108(b) prescribes a statute of limitations for filing actions once a bankruptcy petition is filed.  Section 108(b) does not extend the time that a debtor has to redeem a mortgage once property is sold at a foreclosure sale.” Id. at 527.

Claims Treatable In Bankruptcy:

A dispute also exists among the courts as to whether a tax purchaser has a “claim” treatable in a Chapter 11 or 13 plan, where the plan contemplates a post-redemption period cure.  In In re Lamont, 487 B.R. 488 (N.D.Ill. 2012), the court noted that under the Illinois Tax Code, a tax purchaser holds a claim against a debtor in bankruptcy, but that right to payment enforced by potential loss of the debtor’s home, not a traditional debtor-creditor relationship.  But the existence of a traditional debtor-creditor relationship was not deemed essential to the existence of a claim in bankruptcy.  The court explained that Illinois law viewed the tax purchaser’s interest as an in rem lien enforceable by receipt of a tax deed after expiration of the redemption period.  This lien is a claim that could be treated in a Chapter 13 bankruptcy proceeding.

In re Romious, 487 B.R. 883 (Bankr. N.D.Ill. 2013), decided the issue in the context of an effort to cure delinquent property taxes through a Chapter 13 plan even though the redemption period expired during the pendency of the bankruptcy case.  This issue involved the interplay between Bankruptcy Code Sections 1322(b)(2) and 108(b).  Citing to In re Bates, 270 B.R. 455, 466-67 (Bankr. N.D.Ill. 2001), the court noted the existence of decisions that have allowed Chapter 13 debtors to modify a tax purchaser’s right to receive payment prior to the expiration of the state law redemption period, and instead provide for payment of the purchaser’s claim in installments over the life of the plan.  The court found the reasoning in these decisions persuasive.

It stated that a tax purchaser has an in rem right against property owned by a debtor in a bankruptcy, which gives the tax purchaser a “claim” in the bankruptcy.  As long as the redemption period has not expired prior to the bankruptcy filing, that claim can be modified under a debtor’s Chapter 13 plan. Id. at 886.  Debtors are not restricted by Section 108(b), which “must be viewed in light of and in comparison with the broad powers to modify claims accorded Chapter 13 debtors as well as the predominant policy of Chapter 13 to afford debtors the opportunity to save their residential real estate.”   Id. (quoting In re McKinney, 341 B.R. 892, 902 (Bankr. C.D.Ill. 2006)).  The court went on to note that “the reason debtors ‘may use Chapter 13 to pay the tax debt over time * * * is that they are not exercising their right to redeem.  Instead, they are using their Chapter 13 plan to pay a secured claim over time, as they are entitled to do because Section 1322(b)(2) provides Chapter 13 debtors the right to modify claims.’”  Id. (quoting In re Kasco, 378 B.R. 207, 213 (Bankr. N.D.Ill. 2007)).

Different conclusions were reached in Jackson v. Midwest P’ship, 176 B.R. 156, 158 (N.D.Ill. 1994).  Here, the court found that the certificate of purchase issued after a tax sale “represents an absolute right to receive title to the property if redemption is not made within the statutory period.”  The court compared the rights of a tax purchaser to those of a traditional lien holder and found that the tax purchaser did not hold a lien against the property.  It concluded, therefore, that the purchaser did not have a “right to payment” as contemplated by the Bankruptcy Code’s definition of “claim.”

In In re Blue, 247 B.R. 748, 751-52 (Bankr. N.D.Ill. 2000) the court focused on the relationship between the tax purchaser and the debtor/landowner to hold that no claim existed that could be treated through a plan.  The court explained that because there was no direct creditor-debtor relationship between the purchaser and the landowner, the purchaser has no treatable claim in bankruptcy.  Stated another way, the tax purchaser was not a “creditor” and did not hold a “claim” against the landowner in bankruptcy.  Therefore, it was not bound by the terms of the landowner’s Chapter 13 plan.

In In re Murray, 276 B.R. 869 (Bankr. N.D.Ill. 2002), the court reached the opposite conclusion.  In this case, the court stated that once the period specified under Illinois law for a debtor to exercise its right to redeem, as extended based upon his Chapter 13 filing, had expired without the debtor making any payment to the tax sale purchaser, the debtor’s interest in the property was extinguished, and he could not satisfy the claim of the tax purchaser by making periodic payments thereto under a debt adjustment plan.

In re Jimerson, 2018 WL 4926454 (N.D.Ga.), visited this issue under Georgia law.  In Georgia, real property becomes encumbered by a tax lien each year.  O.C.G.A. §48-2-56(a).  If the property owner fails to pay taxes on the property, the tax commissioner may authorize a tax sale in accordance with O.C.G.A. §§ 48-4-1, et. seq.  The tax sale purchaser obtains a deed to the property.  O.C.G.A. §48-4-6.  This deed, however, does not provide the tax sale purchaser with absolute title to the property, but instead gives the purchaser a defeasible fee interest therein with the title remaining subject to encumbrance for at least one year after purchase due to other interested parties’ statutory rights of redemption.  Section 48-4-40 defines the right of redemption:

Whenever any real property is sold under or by virtue of an execution issued for the collection of state, county, municipal, or school taxes or for special assessments, the defendant in fi. fa. or any person having any right, title, or interest in or lien upon such property may redeem the property from the sale by the payment of the amount required for redemption, as fixed and provided in Code Section 48-4-42:

(1) At any time within 12 months from the date of the sale; and

(2) At any time after the sale until the right to redeem is foreclosed by the giving of the [barment] notice provided for in Code Section 48-4-45.

Therefore, if the property is redeemed, the tax sale is essentially rescinded and a quitclaim deed is executed by the tax sale purchaser back to the owner of the property at the time of levy and sale.

In Jimerson, the court ruled that the debtor’s right of redemption was not subject to modification in a Chapter 13 plan.  It stated that the bankruptcy estate is comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.”  Property interests are created and defined by state law.  Unless some federal interest requires a different result, there is no reason such interests should be analyzed differently simply because an interested party participates in a bankruptcy proceeding.  The court explained:

At the time Appellant filed for bankruptcy, the right to redeem had not expired and the right to redeem became part of the bankruptcy estate.  That right of redemption is subject to a sixty day extension under 11 U.S.C. §108(b)Section 108(b) states that “if applicable nonbankruptcy law * * * fixes a period within which the debtor * * * may * * * cure a default * * * and such period has not expired before the date of the filing of the petition, the trustee may only file, cure, or perform, as the case may be, before the later of–(1) the end of such period, * * *; or (2) 60 days after the order for relief.”  While filing a petition for bankruptcy extends the right of redemption sixty days under Section 108(b), the tax sale purchaser does not hold a secured claim subject to modification under Chapter 13.  It simply extends the hard deadlines to redeem set out under Georgia law  It does not change that the Debtor gets an interest in the property only if the Debtor redeems by the extended date for redemption.

Id. at *3.

TitleMax of Alabama, Inc. v. Womack, 2021 WL 1343051 (M.D.Ala. April 9, 2021), involved redemption periods in the context of a title loan governed by the Alabama Pawnshop Act (“APA”).  In this case, Debtor entered into a pawnshop agreement with TitleMax on March 1, 2019.  Pursuant to the pawn agreement, Debtor “promise[d] to pay lender * * * due and payable on 03/31/2019 (the “Maturity Date”).”  TitleMax received a “security interest” in the vehicle and title, recorded by a lien on the title.  After the Maturity Date, a missed payment would place Debtor’s account in default, at which point TitleMax could “take possession of the vehicle.”  Then, thirty days after the Maturity Date – by operation of the agreement and Alabama law – the unredeemed vehicle would be forfeited, along with absolute right, title, and interest, to TitleMax.  This thirty-day window is commonly referred to as a “grace period” during which the pledgor may redeem the item despite being formally in default.  During these thirty days, TitleMax could have possessed, but not sold, the vehicle; Debtor would have retained a right to redeem the Fusion and a conditional possessory interest.

In this case, the Maturity Date had not yet passed when the debtor filed for bankruptcy and, therefore, TitleMax held a title lien on the vehicle.  Further, and again pursuant to the explicit terms of the pawn agreement, TitleMax also received a “security interest” in the pawned vehicle.  That is, TitleMax held “an interest in personal property or fixtures which secures payment or performance of an obligation.”  Prior to the contract’s Maturity Date (i.e., absent Debtor’s default), therefore, TitleMax held both a title lien and a security interest in the car.

In re Wood, 2021 WL 2946102 (Bankr.M.D.Ga. July 13, 2021), followed the Jimerson rational, and also the Eleventh Circuit opinion in Title Max v. Northington (In re Northington), 876 F.3d 1302 (11th Cir. 2017)Quoting Northington at 1313 and 1314-15, the court explained the following:

Properly understood, the Bankruptcy Code takes an estate’s constituent property interests as it finds them.  If an asset is by its state-law nature static, then it remains so in the bankruptcy estate.  If, by contrast-as is often the case-state law imbues an estate asset with a sort of internal dynamism, then that characteristic will follow the asset into the estate * * * *

Think, for instance, about a debtor whose bankruptcy estate includes an option contract.  If the debtor fails to exercise the option in accordance with state law, then the right to buy disappears.  This case reflects the same basic phenomenon.  Under Georgia’s pawn statute, following his loan’s maturity date, [the debtor] had a conditional right to possess the [car] as well as a right to redeem it during the statutory period.  But after the expiration of the prescribed period, [the debtor] had no rights in the car, possessory or otherwise.  Rather, his rights had been “automatically…extinguished” and “automatically forfeited to [TitleMax]” * * * *

Because we hold that the car ceased to be property of the bankruptcy estate upon the expiration of the redemption period, it follows that 11 U.S.C. §1322(B)(2) * * * has no field of application to this case.  Under that provision, a Chapter 13 plan can “modify the rights of holders of secured claims” on property in the estate.  It is axiomatic, though, that a plan can “modify * * * rights” arising under a “claim” only if the claim exists at the time the plan would purport to modify the rights associated with it-namely at confirmation.  Here, by the time the bankruptcy court confirmed [the debtor’s] Chapter 13 plan * * * TitleMax didn’t have a mere “claim”-it had (by operation of Georgia law) [the car].

Applying the Northington analysis to the Georgia tax sale statute, Wood stated that Georgia law is clear that, once a barment notice is given pursuant to O.C.G.A §48-4-45, the debtor must redeem the property by making a lump sum payment, in the amount prescribed by §48-4-42, before the expiration of the redemption period or the redemption right is extinguished and the debtor no longer has any rights in the property. Id. at *5.  “As the court in Northington held, the Bankruptcy Code does not “freeze” the right of redemption.  Rather, once the time of redemption (and an additional sixty days under Section 108(b)) has expired, the property is no longer property of the estate and there is no “claim” that can be modified under section 1322(b)(2).  Id.


Matthew T. Gensburg