On Aug. 4, 2015, in City of Concord, New Hampshire v. Northern New England Telephone Operations LLC (In re Northern New England Telephone Operations LLC), No. 14-3381 (2nd Cir. Aug. 4, 2015), the U.S. Court of Appeals for the Second Circuit addressed the circumstances under which a creditor’s lien on the property of a debtor may be extinguished through a Chapter 11 plan of reorganization. In explaining how liens must be “dealt with” pursuant to a plan in order to be extinguished thereby, the court employed a four-part test to determine whether a creditor’s liens are extinguished, or whether they pass through the bankruptcy unaffected. This case provides important guidance for creditors on how best to protect their liens on a debtor’s assets, given that the traditional rule—that liens pass through bankruptcy cases unaffected—has been modified by the U.S. Bankruptcy Code.
Facts
The city of Concord, New Hampshire, a creditor in the bankruptcy case of Northern New England Telephone Operations LLC, filed timely proofs of claim for property taxes owed by the debtor for the first two quarters of the 2009 tax year. These taxes had been billed by the city before the debtor filed for bankruptcy protection. The city did not file proofs of claim in the bankruptcy case for the latter two quarters of the same tax year: amounts for those two quarters were billed during the pendency of the bankruptcy case. Pursuant to New Hampshire law, a single tax lien against the taxpayer’s real property secured the taxpayer’s indebtedness for all property taxes billed in one tax year with respect to the property in question, meaning that the city had a lien on the debtor’s property for both the taxes that were subject of the proofs of claim, and those that were not.
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