Therefore, property taxes owed to the city or county are cut. In some cases, school districts are required to refund taxes already received. Most local school districts in Iowa and across the country depend heavily on property taxes paid by businesses and individuals. This federal provision specifically circumvents state law. Grassley said another provision of the bankruptcy code essentially tells local school districts to get in the back of the line.
Federal law puts lawyers' fees and other creditors ahead of the tax liens owed to local governments.
Important services provided by local governments are left to scrape the bottom of the debtor's bankrupt barrel. Specifically, the bill Grassley will introduce on Thursday would amend the code to permit a bankruptcy court to reverse a property valuation decision only when the bankrupt debtor has the right to challenge such a decision under applicable non-bankruptcy law. It also would amend the code to provide that property taxes protected by liens are paid ahead of other expenses. In Iowa, one-half of all property taxes on average go to fund education. Grassley said that means one-half of the losses due to bankruptcy represents a loss of funds to education.