Bankruptcy and Home Owner's Association Dues, Assessments, and Liens
In this article, I will delve into how bankruptcy affects these important aspects, specifically in Chapter 7 and Chapter 13 bankruptcy cases.
Chapter 7 Bankruptcy and HOA Dues:
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, allows debtors to discharge most unsecured debts, giving them a clean slate to start rebuilding their finances. However, it is crucial to understand that while Chapter 7 bankruptcy discharges personal liability for unpaid HOA dues, it does not discharge liens on the debtor's property. Therefore, if a homeowner in Chapter 7 bankruptcy intends to keep their home, they will need to continue paying HOA dues post-bankruptcy filing to prevent any potential foreclosure actions.
Moreover, it is essential to consult with an experienced bankruptcy attorney to determine whether the debtor is liable for any HOA dues that arose before the bankruptcy filing. State laws and the HOA's governing documents can influence whether these pre-bankruptcy dues are considered dischargeable or non-dischargeable.
Chapter 13 Bankruptcy and HOA Dues:
Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows debtors to create a manageable repayment plan to catch up on delinquent debts, including past-due HOA dues. Under Chapter 13, debtors can include their HOA dues in the repayment plan, providing a structured approach to address the outstanding amounts.
Treatment of HOA Liens in Chapter 13 Bankruptcy:
One of the significant advantages of Chapter 13 bankruptcy is its ability to address HOA liens on a debtor's property. In certain situations, a debtor's Chapter 13 plan can provide for the treatment of HOA liens in the following ways:
1. Curing Pre-Bankruptcy Delinquencies: Debtors can propose a plan that allows them to cure any pre-bankruptcy delinquent HOA dues over time. This gives homeowners a chance to catch up on their arrears and bring their account current.
2. Stripping Off Unsecured HOA Liens: In some cases, if the value of the debtor's property is less than the amount owed on the mortgage, it may be possible to strip off unsecured HOA liens. This essentially converts the HOA's lien from secured to unsecured, allowing it to be discharged at the end of the Chapter 13 plan, provided that all plan payments are successfully made.
3. Avoiding HOA Liens on Underwater Properties: Debtors may also have the option to avoid HOA liens altogether if their property is underwater (i.e., the property's fair market value is less than the amount owed on the mortgage). In this scenario, the HOA lien is considered wholly unsecured and can be avoided.