In re Harris

• Decision Date: 22 September 2022
• Docket Number: 21-23864-kmp
• Parties: In re: Robert Lee Harris and Misty Harris, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

1

In re: Robert Lee Harris and Misty Harris, Debtors.

No. 21-23864-kmp

United States Bankruptcy Court, E.D. Wisconsin

September 22, 2022

DECISION AND ORDER (1) SUSTAINING DEBTORS' OBJECTION TO AMENDED CLAIM NO. 1-2 FILED BY THE CITY OF MILWAUKEE TREASURER'S OFFICE; AND (2) OVERRULING THE CITY OF MILWAUKEE'S OBJECTION TO THE DEBTORS' AMENDED PLAN

Katherine Maloney Perhach United States Bankruptcy Judge

The issue before the Court is whether charges for delinquent municipal services, delinquent storm water services, delinquent water services, "other special" services, and interest and penalties that were included on the Debtors' property tax bill by the City of Milwaukee (the "City") should be classified as a priority claim under 11 U.S.C. § 507(a)(8)(B) as "a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition." If some or all of these charges are entitled to priority status under § 507(a)(8)(B), then the Debtors' Chapter 13 plan must pay those charges in full under § 1322(a)(2), unless the City agrees to different treatment. For the reasons stated below, the Court finds that the City has not met its burden of proving that the charges for the delinquent municipal services, the delinquent storm water services, the delinquent water services, the "other special" services, and interest and penalties that were included on the Debtors' property tax bill by the City were a "property tax." Therefore, those amounts are not entitled to priority status as stated in the City's amended proof of claim. Accordingly, the Debtors' objection to the City's amended proof of claim is sustained and the City's objection to the Debtors' amended plan is overruled.

2

FACTS

The Debtors in this case own and reside at real property located at 3038 N. 30th Street, Milwaukee, Wisconsin (the "Property"). It is undisputed that at the time the Debtors filed this bankruptcy case, they owed the City significantly more than the Property was worth. The Debtors asserted in their schedules that the value of the Property is $26,000. Amended Schedule A/B, Docket No. 77 at 1. The City filed an amended proof of claim in this case agreeing with the Debtors that the value of the Property is $26,000. Amended Claim No. 1-2. The Debtors stated in their bankruptcy schedules that they owed $54,961.88 to the City for "Real Estate Tax Arrearage." Docket No. 24 at 11. The City's amended proof of claim agreed with the Debtors and confirmed that the Debtors owe a total of $54,961.88 to the City. Amended Claim No. 1-2. The Debtors and the City agree that the City has a secured claim in the amount of $26,000 and an unsecured claim in the amount of $28,961.88.^[1] This is where the agreement between the parties ends.

The Debtors and the City disagree about the amount of the City's unsecured claim that is entitled to be treated as a priority claim under § 507(a)(8)(B) as "a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition." In its proof of claim, the City asserted that the amount of $3,897.19 should be classified as a priority claim under § 507(a)(8). Amended Claim No. 1-2. The City offered the following breakdown of that amount in the attachment to its amended proof of claim:

2020 Tax Principal	$479.45
2020 Special Charges	$3,095.95
Subtotal	$3,575.40
2020 Interest & Penalties	$321.79
Total	$3,897.19

The Debtors filed an objection to the City's proof of claim, challenging the City's classification of its claim as a priority claim under § 507(a)(8)(B). Docket No. 109. The Debtors attached their 2020 City of Milwaukee Combined Property Tax Bill to their claim objection. The tax bill attached as Exhibit A to the Debtors' claim objection showed the following:

2020 Net Property Tax	$479.45
Detail of Special Assessments and Other Charges • Delinquent Municipal Services • Delinquent Storm Water Account • Delinquent Water Account	$379.54 $347.55 $480.03
Total Other Special	$1,888.83
Total	$3,575.40[2]

3

The Debtors asserted that only the "net property tax" in the amount of $479.45 was a "property tax" entitled to be treated as a priority claim under § 507(a)(8)(B).^[3] The Debtors further asserted that the charges for the delinquent municipal services, the delinquent storm water services, the delinquent water services, and the "other special" services were not a "property tax" and therefore not entitled to be treated as a priority claim under § 507(a)(8)(B).

The Debtors filed an amended Chapter 13 plan that proposed to pay the secured portion of the City's amended claim in the amount of $26,000, the agreed value of the Property. Docket No. 119. As for the unsecured portion of the City's amended claim, the Debtors proposed to pay $479.45, the amount of the 2020 net property tax for the Property, as an unsecured priority claim under § 507(a)(8)(B) as "a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition." Id. They proposed to pay the remaining balance of the City's amended claim in the amount of $28,482.43 as a general unsecured claim.^[4] Id.

The City objected to the Debtors' proposed amended Chapter 13 plan and also responded to the Debtors' claim objection, asserting that $3,897.19 of its claim was entitled to priority status and must be paid in full through the Debtors' Chapter 13 plan.

The Court held a hearing on the Debtors' objection to the City's amended proof of claim and on the City's objection to the Debtors' amended plan. The Court ordered the parties to "file

4

letter briefs addressing whether the delinquent municipal services, delinquent water, delinquent storm water, and other special services are entitled to priority status under 11 U.S.C. § 507(a)(8)(B), including a discussion of In re Grede Foundries, Inc., 651 F.3d 786 (7th Cir. 2011)." Docket No. 127. The Court further ordered the City to "file affidavit(s) in support of its position that the delinquent municipal services, delinquent water, delinquent storm water, and other special services are entitled to priority status under 11 U.S.C. § 507(a)(8)(B)." Id. The Court also afforded the Debtors the opportunity to file rebuttal affidavits upon receipt of the City's affidavits if they chose to do so. Id.

BURDEN OF PROOF

A proof of claim is "prima facie evidence of the validity and amount of the claim." Fed.R.Bankr.P. 3001(f). "The same evidentiary presumption does not apply to a claim's priority status." In re Peete, 642 B.R. 299, 309 (Bankr. E.D. Wis. 2022). A claimant has the burden of proving by a preponderance of the evidence that its claim is entitled to priority status. In re Alewelt, 520 B.R. 704, 710 (Bankr. CD. Ill. 2014). As discussed below, the City has failed to meet its burden of proving by a preponderance of the evidence that the charges for the delinquent municipal services, the delinquent storm water services, the delinquent water services, the "other special" services, and interest and penalties are a "property tax" entitled to priority status under § 507(a)(8)(B).

ANALYSIS

Section 507(a)(8)(B) grants priority status to "a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition." The Bankruptcy Code does not define the terms "tax" or "property tax." The United States Supreme Court has directed courts...