Bankruptcy And Property-Tax Foreclosure
Homeowners can still challenge some tax foreclosures
The Sixth Circuit rejected a blanket rule that would have put property-tax foreclosures beyond bankruptcy preference review. In the Michigan case, judges said the size of the county’s recovery still matters.
Carrie Reinhardt won a ruling that keeps the door open to bankruptcy challenges over some property-tax foreclosures. The court said the facts, not a categorical tax label, decide whether the transfer can be attacked.
- The Sixth Circuit rejected a blanket rule shielding tax foreclosures from bankruptcy review.
- The case came from Michigan and involved Carrie Ann Reinhardt.
- A county can still face preference scrutiny when it is drastically oversecured.
- Homeowners may still be able to challenge some recent foreclosures in bankruptcy.
- In the federal Sixth Circuit, Carrie Ann Reinhardt won a ruling that cuts against the idea that property-tax foreclosures always sit outside bankruptcy preference law
Carrie Ann Reinhardt won a ruling that keeps some property-tax foreclosures open to bankruptcy challenge. The Sixth Circuit said judges must look at the facts of each case instead of treating every tax foreclosure as automatically protected, even when the county is owed far more than the property is worth.
The case came out of Michigan and leaves the bigger point intact: a foreclosure tied to unpaid taxes is not automatically beyond bankruptcy review. Whether the transfer can be unwound still turns on the facts, not on a blanket shield for counties.
Why the value gap matters
That matters because bankruptcy is built to look past labels and ask what a creditor actually got. When a county takes a home worth far more than the tax debt, the judges said, the transfer can still matter under preference law.
For homeowners, the ruling does not promise a return of the house. It does mean some recent tax foreclosures may still be challenged in bankruptcy court instead of being shut out by a rule that treats every tax sale the same.