Failure to Pay Overdue Taxes Violates Bankruptcy Rules

Facts: After a tenant filed for bankruptcy, a limited liability company (LLC) agreed, in a bankruptcy court order, to take over the tenant's lease and settle the tenant's outstanding debt, as determined by bankruptcy rules. The bankruptcy court's order also required the tenant to settle all existing defaults, including the overdue 2005 real estate taxes assessed on the property. In addition, the LLC reserved the right to seek an order determining whether the tenant was responsible for a portion of the 2006 real estate taxes that accrued while the tenant still held the lease.

At the time the bankruptcy court approved the lease assignment to the LLC, the tenant had not been billed for the 2006 taxes, and the due date was several months after the assignment date.

A year later, the LLC exercised its reserved option and asked the bankruptcy court to rule on the 2006 taxes. The bankruptcy court ruled that the tenant must pay the 2006 taxes. The tenant appealed.

Decision: An Illinois district court upheld the bankruptcy court ruling.

Reasoning: The court determined that the bankruptcy rules required the tenant to pay the 2006 taxes because they had accrued and the obligation to pay them arose while the tenant still held the lease.

• In Re: Bachrach Clothing, September 2008