Hon. Mark A. Randon
Chapter 13 ORDER SUSTAINING IN PART THE TRUSTEE AND DEBTORS' OBJECTIONS TO THE WAYNE COUNTY TREASURER'S PROOF OF CLAIM
I. INTRODUCTION
The City of Detroit and Wayne County have an arrangement for the collection of property taxes: current-year taxes are payable to the City; however, any taxes that remain unpaid as of March 1 of the next year are delinquent and transferred to the Wayne County Treasurer for collection. Michigan law requires that the County add a four percent administration fee to the taxes once transferred. At issue here is the addition of this fee after a Chapter 13 plan has been confirmed.
Because Debtors' Chapter 13 plan "provided for" the payment of their 2013 property taxes, the plan was confirmed before the City forwarded the 2013 taxes to the County, and the County is simply a transferee of the City's claim, the Court SUSTAINS the objections. The County is bound by the provisions of the confirmed plan and cannot add the four percent administration fee to the 2013 property taxes.
The Trustee and Debtors also argued that the County's claim for the 2013 property taxes duplicated the City's claim and would result in a "double payment." However, during oral argument, the County confirmed it was not seeking double payment.
The 2014 and subsequent tax-year property taxes are not "provided for by the plan." The County is, therefore, permitted to add the administration fee to these years.
II. BACKGROUND
Kenneth and Rosalind Rice ("Debtors") own a house in the City of Detroit. When they filed Chapter 13 bankruptcy in September of 2013, the 2013 property taxes were due and payable to the City. The City was listed as a creditor, included in Debtors' plan, and on October 22, 2013, the City filed a proof of claim (#3-1) for $1,185.87 at 12% interest. Debtors' plan was confirmed on December 14, 2013. The City did not object. In March of 2014, the City transferred the delinquent 2013 property taxes to the County.
During their bankruptcy case, Debtors failed to pay the 2014 property taxes. These taxes were transferred as delinquent to the County for collection on March 1, 2015. In 2016, the County filed its own proof of claim (#13-1) for the 2013 and 2014 unpaid property taxes. The County's claim totals $3,013.74: $1,522.11 for the 2013 property taxes; and $1,493.63 for the 2014 property taxes. The claim includes the four percent administration fee in addition to the statutory interest rate of 12% per year.
Debtors and the Trustee object to the County's proof of claim for the 2013 property taxes. The County relies on Michigan law and 11 U.S.C. § 511 to support its position that the post-confirmation addition of the administration fee is proper.
III. ANALYSIS
A. 11 U.S.C. § 511 Instructs Courts on how to Determine the Rate of Interest on Tax Claims
The County's proof of claim includes a four percent administration fee that is required by Michigan law. MICH. COMP. LAWS § 211.78a(3): "[a] county property tax administration fee of 4% . . . shall be added to property returned as delinquent under this section." The County relies on 11 U.S.C. § 511 to support its position that its proof of claim is permitted with the additional fee. Section 511 provides as follows:
(a) If any provision of this title requires
the payment of interest on a tax claim or on an administrative expense tax, or
the payment of interest to enable a creditor to receive the present value of the allowed amount of the tax claim,
the rate of interest shall be the rate determined under applicable nonbankruptcy law.
(b) In the case of taxes paid under a confirmed plan under this title, the rate of interest shall be determined as of the calendar month in which the plan is confirmed.
(Emphasis added). This section does not apply to the County's claim because the four percent is an
administration fee-not the payment of
interest on the tax claim.
Even assuming section 511 could be construed as applying to fees as well as interest on the tax claim, the County still would not be permitted to add the administration fee to the 2013 property taxes. Under section 511(b), when taxes are included in a plan, the rate of interest is fixed "as of the calendar month in which the plan is confirmed." No additional interest or fees can be subsequently added. Therefore, when Debtors' plan was confirmed in December of 2013-before the property taxes were transferred to the County-the interest rate was fixed at 12 percent without the additional four percent administration fee.
B. The County is Bound by the Provisions of the Confirmed Plan
11 U.S.C. § 1327(a) provides that "[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan."
In the case of In re Walsh, 264 B.R. 482 (Bankr. N.D. Ohio 2001), debtors listed the Cuyahoga County Treasurer as a creditor for unpaid real estate taxes in their Chapter 13 bankruptcy. However-before debtors filed bankruptcy-GLS Capital-Cuyahoga, Inc. ("GLS") had purchased from the County tax certificates for the real estate taxes on debtors' residence. After the plan was confirmed, GLS learned of debtors' bankruptcy and filed a proof of claim adding 18% interest as permitted by Ohio law. The debtors objected, arguing that the 18% interest was not provided for by the confirmed plan. Id. at 483.
The Walsh court acknowledged that "[g]enerally, a confirmed Plan is binding upon all creditors, whether or not it provides for their claim, pursuant to § 1327(a) of the Bankruptcy Code." Id. at 483-84. However, the court held that section 1327(a) did not apply because GLS was the proper creditor, and it did not receive notice of the bankruptcy filing before the plan was confirmed. Id. at 484:
Where a creditor does not have notice of the bankruptcy case, however, the
Plan will not be given that binding effect as to that creditor. Here, GLS did not receive notice of the Debtors' bankruptcy case until . . . approximately four months after their Plan was confirmed, and approximately seven months post-petition. Therefore, the confirmed Plan is not given the binding effect of § 1327(a), upon the aforesaid reasons.
Walsh is distinguishable. Here, the City had notice of Debtors' bankruptcy before the plan was confirmed and, at the time, was the proper creditor for Debtors' 2013 property taxes. After confirmation, the City transferred the taxes to the County. The County simply stepped into the shoes of the City and is, therefore, bound by the provisions of the confirmed plan. See Enron Corp. v. Ave. Special Situations Fund II, LP (In re Enron Corp.), 333 B.R. 205, 223 (Bankr. S.D.N.Y. 2005) ("[t]here is no basis to find or infer that transferees should enjoy greater rights than the transferor"); see also Cyber Solutions Int'l, LLC v. Pro Mktg. Sales, Inc., 634 F.App'x 557, 564 (6th Cir. 2016) ("[u]nder Michigan law, . . . an assignee or transferee acquires no greater rights in the property at issue than the assignor or transferor itself possessed"). Therefore, section 1327(a) prohibits the County from adding the administration fee post-confirmation.
The City had the option to object to confirmation and require Debtors' plan to include a provision that addressed the anticipated four percent administration fee once the property taxes were transferred to the County. --------
IV. CONCLUSION
Because Debtors' Chapter 13 plan "provided for" the payment of their 2013 property taxes, the plan was confirmed before the City forwarded the 2013 taxes to the County, and the County is simply a transferee of the City's claim, the Court SUSTAINS the objections. The County is bound by the provisions of the confirmed plan and cannot add the four percent administration fee to the 2013 property taxes.
On or before September 9 , 2016 , the County shall file an amended proof of claim that deducts the four percent administration fee for the 2013 property taxes only. In all other respects, the objections are overruled.
IT IS ORDERED. Signed on September 01, 2016
/s/ Mark A. Randon
Mark A. Randon
United States Bankruptcy Judge