Lost Your Philadelphia Home at a Tax Sale? How Chapter 13 Bankruptcy Can Get It Back

Every year, the City of Philadelphia sells thousands of properties at Sheriff’s upset tax sales to collect delinquent real estate taxes. For homeowners who fall behind on their property taxes, losing a home at a tax sale can be devastating — especially when the property is sold for a fraction of its market value. But losing your home at a tax sale does not necessarily mean it is gone forever.

Pennsylvania law provides a nine-month right of redemption after a tax sale, and federal bankruptcy law can serve as a powerful tool to exercise that right — even when you cannot pay the full redemption amount immediately. At Siddons Law Firm, we have used Chapter 13 bankruptcy to help Philadelphia homeowners reclaim their properties after upset tax sales, and federal courts in our district have upheld this strategy.

How Philadelphia Upset Tax Sales Work

Philadelphia’s upset tax sale process is governed by Pennsylvania’s Municipal Claim and Tax Lien Act (“MCTLA”), 53 P.S. §§ 7101-7505. When a homeowner falls behind on real estate taxes, the City can file a tax lien and ultimately sell the property at a Sheriff’s sale. The process typically unfolds as follows: the City files a municipal claim for the unpaid taxes, obtains a judgment in the Philadelphia Court of Common Pleas, and schedules the property for Sheriff’s sale. At the sale, the property is sold to the highest bidder, and the Sheriff executes and delivers a deed conveying the property to the purchaser.

After the sale, the tax sale purchaser often files a complaint in ejectment in the Court of Common Pleas to remove the former homeowner from the property. Default judgment on the ejectment action can be obtained quickly, and a writ of possession can follow within days. For many Philadelphia homeowners, the first indication that their home has been sold comes when a sheriff’s deputy arrives to execute the writ of possession.

The Nine-Month Right of Redemption Under Pennsylvania Law

The MCTLA provides a critical protection for homeowners: the right of redemption. Under 53 P.S. § 7293(a), property sold at a tax sale may be redeemed within nine months from the date of the acknowledgment of the Sheriff’s deed. This means that even after the sale, the former homeowner retains an equitable interest in the property that can be exercised within this redemption window.

Critically, the tax sale purchaser’s title does not become absolute until the redemption period expires. As the Pennsylvania Supreme Court established in Hess v. Potts, 32 Pa. 407, 410-11 (1859), the purchaser acquires only a defeasible title — one that is subject to the debtor’s equitable right of redemption. The statute is to be “liberally construed so as to effect its object and to promote justice.” City of Phila. v. Taylor, 465 A.2d 33, 35 (Pa. Super. 1983).

An important nuance that many attorneys overlook: § 7293 does not require that the full redemption amount be paid before the expiration of the redemption period. Rather, the statute only requires that the redemptor “begin the redemption process” within the nine-month window. City of Phila. v. Chin, 535 A.2d 110, 112 (Pa. Super. 1987); Taylor, 465 A.2d at 35. This distinction is precisely what makes Chapter 13 bankruptcy such a powerful tool.

How Chapter 13 Bankruptcy Enables Property Redemption

Chapter 13 bankruptcy provides the legal mechanism to exercise your redemption rights when you cannot pay the full redemption amount in a lump sum. Here is how the strategy works:

Step 1: File a Chapter 13 petition within the nine-month redemption period. Filing the bankruptcy petition triggers the automatic stay under 11 U.S.C. § 362, which immediately halts all collection activity, including any ejectment proceedings. The filing itself constitutes the beginning of the redemption process under § 7293.

Step 2: Avoid the Sheriff’s deed. Under 11 U.S.C. § 522(h), the debtor can exercise the trustee’s avoidance powers to avoid the transfer of property. In the Terry case, the bankruptcy court used this provision to avoid the Sheriff’s deed conveying the property to the tax sale purchaser, effectively restoring the debtor’s ownership interest.

Step 3: Propose a Chapter 13 plan that pays the redemption amount over time. The confirmed plan provides for payment of all allowed claims — including the tax sale purchaser’s secured claim — over the life of the plan (typically three to five years). This allows the homeowner to pay the redemption amount in manageable monthly installments rather than a single lump sum.

Step 4: Negotiate a settlement with the tax sale purchaser. In many cases, the tax sale purchaser is willing to negotiate a stipulation of settlement that establishes the amount and terms of repayment, since the alternative — protracted litigation with uncertain outcomes — is often less attractive.

The In re Terry Decision: Federal Court Confirmation of This Strategy

The viability of this approach was confirmed by the United States District Court for the Eastern District of Pennsylvania in In re Otis W. Terry, Jr., Civil Action Nos. 14-6195 and 15-0913 (E.D. Pa. Dec. 21, 2015) (Savage, J.). The Terry case involved a Philadelphia homeowner whose property at 7128 Mount Airy Place was sold at a Sheriff’s tax sale for $120,000. After the purchaser obtained default judgment in an ejectment action and filed a writ of possession, Mr. Terry filed a Chapter 13 petition to save his home.

The bankruptcy court held that Mr. Terry had exercised his right of redemption when he filed his Chapter 13 plan within the nine-month redemption period. The court confirmed a plan that provided for payment of all claims, including the tax sale purchaser’s secured claim of $125,624.66, through a combination of an initial payment and forty-four monthly installments. The Sheriff’s deed was avoided, and the property was restored to the debtor.

The City of Philadelphia appealed both the consent order approving the settlement and the confirmation order. On appeal, the District Court dismissed the City’s appeals on multiple grounds:

Standing: The court held that the City lacked standing to appeal because it was not “directly and adversely affected pecuniarily” by the bankruptcy court’s orders. The City’s claims had been paid in full through the confirmed plan, and its interest in potential transfer tax revenue was too speculative and remote to confer standing.

Rooker-Feldman Doctrine: The court rejected the City’s argument that the Rooker-Feldman doctrine barred the bankruptcy court from granting relief. The court found that Mr. Terry was not seeking to overturn the state court judgment — he acknowledged the validity of the judgment and simply exercised his redemption rights under Pennsylvania law.

Bad Faith: The court rejected the argument that filing bankruptcy solely to redeem property constituted bad faith. The court noted that Terry’s lack of pre-petition debt, standing alone, does not establish bad faith, and that the Bankruptcy Code does not bar a solvent debtor from filing for protection.

Limitations of the Terry Strategy

While the Terry decision is a powerful tool for Philadelphia homeowners, it is important to understand its limitations. The strategy is most directly applicable to properties within the City of Philadelphia that are subject to the MCTLA’s upset tax sale procedures. The suburban counties surrounding Philadelphia — Delaware, Chester, Montgomery, and Bucks Counties — generally conduct tax sales under different procedures, and the specific redemption rights and timelines may differ.

Additionally, the strategy requires that the bankruptcy petition be filed within the nine-month redemption period from the date the Sheriff executed and acknowledged the deed. Missing this window can eliminate the right of redemption entirely. It is also essential that the Chapter 13 plan be feasible — the debtor must demonstrate the ability to fund the plan payments, whether through personal income, family contributions, or other sources.

The Terry case also involved a tax sale purchaser who was willing to negotiate a stipulation of settlement. Not all purchasers will be as cooperative, and contested cases may require adversary proceedings and more complex litigation strategies.

Why You Need an Attorney Who Understands Both Bankruptcy and Tax Sale Law

Saving a home from a Philadelphia tax sale through Chapter 13 bankruptcy requires a unique combination of expertise in federal bankruptcy law, Pennsylvania real property law, and Philadelphia’s specific tax sale procedures. The attorney must understand the interplay between the MCTLA’s redemption provisions, the Bankruptcy Code’s avoidance powers, and the procedural requirements of both the bankruptcy court and the Court of Common Pleas.

At Siddons Law Firm, we practice in both bankruptcy court and state court, giving us the ability to coordinate the filing of the Chapter 13 petition with the redemption timeline, negotiate with tax sale purchasers, draft stipulations of settlement, and pursue adversary proceedings when necessary. If your Philadelphia home has been sold at a tax sale, time is critical — contact us immediately to evaluate whether Chapter 13 bankruptcy can help you get your home back.

Frequently Asked Questions

How long do I have to redeem my property after a Philadelphia tax sale?

Under the MCTLA (53 P.S. § 7293), you have nine months from the date the Sheriff executed and acknowledged the deed conveying your property to the purchaser. This deadline is strict, and you must at minimum begin the redemption process within this window.

Do I need to pay the full redemption amount within nine months?

No. Pennsylvania courts have held that § 7293 only requires that you begin the redemption process within nine months — not that you pay in full. Filing a Chapter 13 bankruptcy petition with a plan to pay the redemption amount over time satisfies this requirement, as confirmed in the Terry decision.

Can I file Chapter 13 bankruptcy even if my only debt is the tax sale?

Yes. The Terry court rejected the argument that filing bankruptcy without traditional pre-petition debt constitutes bad faith. The court held that a debtor in financial distress — which can include a homeowner facing loss of their property — may file for bankruptcy protection regardless of whether they have other debts.

Does this strategy work for properties outside Philadelphia?

The Terry decision is most directly applicable to Philadelphia properties subject to the MCTLA’s upset tax sale procedures. Suburban counties may have different tax sale procedures and redemption rules. However, the underlying bankruptcy principles — the automatic stay, avoidance powers, and ability to pay claims through a plan — apply regardless of location. Consult with our attorneys to evaluate your specific situation.

What happens to the tax sale purchaser’s claim?

The tax sale purchaser’s claim is treated as a secured claim in the Chapter 13 plan. The plan provides for payment of the full allowed amount — typically the purchase price plus any additional costs — over the life of the plan. In the Terry case, the purchaser’s secured claim of $125,624.66 was paid through an initial payment plus forty-four monthly installments of $1,200.