Testimony showed how corporations are able to declare bankruptcy and lower their property tax liabilities in the process. Because a federal bankruptcy judge is allowed to lower the assessed value of a bankruptcy estate, the property taxes owed to the city or county are cut. In some cases, school districts are required to refund taxes already received. This federal provision specifically circumvents state law. Another provision 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. That means students and teachers often can be left empty-handed. Clearly, these bankruptcy loopholes must be closed. It sends the wrong signal at the expense of education. Corporations declaring bankruptcy virtually can get their tax obligations cut.