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White Oak Funding, Inc. v. Borough of Eatontown

A-6999-97T5F (N.J. Super. App. Div. 1998) (Unpublished)

TAX LIENS; BANKRUPTCY—When a property is abandoned in a bankruptcy, liens for unpaid taxes that accrued during the bankruptcy proceeding attach.

The question raised by this appeal is whether a municipal lien for real estate taxes, unpaid during the years when bankruptcy proceedings were pending against the owner, is enforceable after the bankruptcy proceedings are terminated and the trustee in bankruptcy has abandoned the property. Upon such an abandonment, a property reverts to the debtor and stands as if no bankruptcy petition was filed. According to the Bankruptcy Reform Law of 1994, the automatic stay provision of the Bankruptcy Code bars the creation of a post-petition municipal tax lien. Consequently, the property owner argued that the 1994 Bankruptcy Reform Act did not apply retroactively to petitions filed, as here, prior to its effective date and consequently that prior case law controls. The Court rejected that argument for several reasons. First, the cited cases addressed neither the existence nor the enforceability of a lien after termination of the proceedings and, significantly, even jurisdictions that followed the cited cases recognized the distinction between pending proceedings and terminated proceedings. Also, a bankruptcy discharge affects only the debtor’s personal debts and does not bar creditors, after discharge, from proceeding in rem against the debtor’s property. Consequently, the Court was persuaded that once title to a property reverts to a debtor upon the trustee’s abandonment following discharge or termination of the proceedings, municipal tax liens for all accrued taxes during the pendency of the petition attach.


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