Bankruptcy Questions Answered

Chapter 7 Bankruptcy Debtor May Face Liability For Post-Filing HOA Dues

Chapter 7 bankruptcy debtors facing foreclosure against invested in multiple properties face unexpected jeopardy from unpaid homeowner association or condominium association fees and assessments. One of my Chapter 7 bankruptcy debtors owned four properties facing foreclosure. Each property had a homeowners association. The debtor suffered a severe income reduction. He fell behind in all mortgages and could no long afford to pay his HOA monthly dues.

The debtor’s Chapter 7 bankruptcy filing delayed the foreclosure actions for a few weeks. The court entered a discharge. The banks continued foreclosure litigation after the court lifted the stay. The mortgage foreclosures took many months to complete after the discharge. The debtor was not concerned because his bankruptcy discharged any potential deficiency judgment as the mortgage debt was incurred prior to filing bankruptcy.

The problem was the debtor’s liability for homeowner’s dues.The bankruptcy eliminated the debtor’s liability to the HOAs for dues which became due prior to the filing date. However, bankruptcy courts consider HOA dues to accrue monthly. The debtor’s HOA liability that accrued in the months after the bankruptcy was filed is new debt and was not discharged in bankruptcy. The debtor’s HOA liability continued until the dates of the foreclosure sales on each property.

As a practical matter, few HOAs will pursue a judgment against a debtor who has recently filed bankruptcy. By the terms of the bankruptcy, such debtor has no non-exempt assets when he files and is unlikely to have accumulated assets in the brief period between bankruptcy and foreclosure. However, bankruptcy debtors with HOA liability should be aware that bankruptcy does not end liability for HOA dues.