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 §362 were found to prevail over Section 108(b) of the Bankruptcy Code, the effect would be to enlarge property rights granted and circumscribed by state law, thus rendering the pertinent time allotment of §108 unnecessary.[1]  In addition, specific statutory references, such as those referring to redemptions in §108, are held to control over those which are general, such as the general provisions of §362(a).[2] Accordingly, a number of courts have found that §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 §108(b).[3]

The Sixth Circuit and numerous Michigan courts have determined that only §108(b) of the Bankruptcy Code automatically extends the statutory redemption period.[4]  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 §108(b).[5];

The second line of cases, the minority position, suggest that the all-encompassing nature of §362(a) overrides the specific extension of time granted in §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.[6]

Finally, In re Psychiatric Hospitals of Hernando, Inc., 243 B.R. 524 (Bankr.M.D.Fla.1999) has come to the conclusion that §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 does hold a claim against a debtor in bankruptcy, but that right to payment is enforced by the potential loss of the debtor’s home, not a traditional debtor-creditor relationship.  The Seventh Circuit Court of Appeals affirmed in In re LaMont, 740 F.3d 397 (7th Cir.2014).  Here, the court noted that Illinois courts have consistently treated the tax purchaser’s interest as a tax lien. Id. at 404. Thus, when the Illinois Appellate Court in Application of Cnty Collector (Howell v. Edelen), 383 N.E.2d 1224, 1231 (1978) said that a tax purchaser has a “property interest” in the real estate, the court meant a “species of personal property, i.e., a lien for taxes.  The court went on to note that before the redemption period has expired, a property subject to a Certificate of Purchase still belongs to the delinquent taxpayer, legally and equitably. Id. at 406.  “Accordingly, the debtors owned their home and, upon filing their bankruptcy petition, it became property of the bankruptcy estate.” 

Admittedly, this is not a traditional type of claim.  The court explained that the taxpayer has the option to pay the redemption amount, but not the obligation to pay – and even if there is an obligation to pay, it is to the county, not to the tax purchaser.  Only if the taxpayer opts to pay the redemption amount to the county, does the tax purchaser have a right to the redemption amount from the county. Id. 407  However, the Bankruptcy Code includes in Section 102(2) a construction clause which expands the definition of “claim” to include claims against the debtor’s property. Id.

Functionally, the tax purchaser’s is secured by the debtors’ property.  And a Chapter 13 plan may “modify the rights of holders of secured claims.”  The plan may not modify security interests in real property that is the debtors’ principal residence.  But the tax purchaser’s claim is not a security interest because it was not created by agreement.

[The tax purchaser’s] assertion that the full redemption amount must be paid in a lump sum before the redemption deadline – i.e., that a proper redemption must be made – is mistaken.  The plan is treating his secured claim, not formally redeeming the property.  The bankruptcy code provides that a Chapter 13 plan may modify a secured claim and pay it over the course of the plan.

* * * *

The expiration of the redemption period did not affect the plan’s treatment of [the tax purchaser’s] secured claim except that, if the debtors had failed to comply with the plan, then his equitable remedy would have survived and he could have sought an order to issue a deed.[7]

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 rather 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 why such interests should be analyzed differently simply because an interested party is involved 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.[8]

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.

[1]              Johnson v. First National Bank, 719 F.2d 270 (8th Cir.1983), cert. denied, 465 U.S. 1012, 104 S.Ct. 1015, 79 L.Ed.2d 245 (1984); and Counties Contracting & Constr. Co. v. Constitution Life Ins. Co., 855 F.2d 1054 (3rd Cir.1988).

[2]              In re Farmer, 81 B.R. 857, 861 (Bankr.E.D.Pa.1988).

[3]              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)

[4]              In re Glenn 760 F.2d 1428, 1440 (6th Cir.) cert. denied, 474 U.S. 849, 106 S.Ct. 144, 188 L.Ed.2d 119 (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).

[5]              See also 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)

[6]              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).

[7]              Id. at 410.

[8]              Id. at *3.


Matthew T. Gensburg
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