By Kitty J. Lin
What happens when you have unpaid homeowners association (HOA) dues when you file for bankruptcy? Are they dischargeable in your bankruptcy case? The answer, like most things, depends on the situation. Here are some scenarios:
You are Filing a Chapter 7 Bankruptcy Case and You are Surrendering Your Property
If you are filing a Chapter 7 and you have unpaid HOA dues, all the pre-petition unpaid dues (dues you owe up to the time you file your bankruptcy case) are dischargeable. This means those dues are wiped out and you do not have to pay them upon the discharge of your bankruptcy case. The HOA dues that are unpaid prior to filing are considered unsecured debts. However, you must pay all the HOA dues that come due after your petition date. Even if you surrender your property the only debts that are dischargeable are the ones you have incurred prior to filing your bankruptcy petition. All post-petition debt is still your responsibility until the property is out of your name either by foreclosure or other means.
You are Filing a Chapter 7 Bankruptcy and You are Keeping Your Property
If you are filing a Chapter 7 bankruptcy case and you are keeping your property, the same rule applies – only pre-petition debt is dischargeable and post-petition debt is your responsibility. If the homeowners association board files a lien against your property and you would like to keep your property, then the lien is treated the same as a mortgage – it is a secured debt that is not discharged and you would need to pay the balanced owed. The homeowners association may potentially foreclose on your property if the lien is not satisfied. Filing a Chapter 7 bankruptcy case will most likely not relieve you of the HOA dues in this scenario.
You are Filing a Chapter 13 Bankruptcy and You are Surrendering Your Property
If you are filing a Chapter 13 bankruptcy case and you are surrendering your property, your pre-petition HOA dues are treated as an unsecured debt. They will be paid with all the other general unsecured creditors. Since you are surrendering your property it does not matter whether there is a lien on the property or not. Even if there was a lien on your property, it does not affect your case given that you are surrendering the property and the HOA will be treated like all other creditors with secured debts and the collateral is being surrendered. One of the advantages of filing a Chapter 13 bankruptcy versus a Chapter 7 bankruptcy is that in a Chapter 13 bankruptcy case your post-petition HOA dues will be dischargeable as well if you are surrendering your property.
You are Filing a Chapter 13 Bankruptcy and You Wish to Keep Your Property
If there is a secured lien on your house when you file your Chapter 13 bankruptcy case the treatment of that lien depends on whether there is equity in your property at the time you file your bankruptcy case. If your house is underwater (meaning the house is worth less than what you owe on the first mortgage) then the HOA lien can be stripped. A request to the court can be made to value your property and remove or strip the lien. If the house is worth more than what you currently owe on the senior liens (first mortgage), then the HOA lien cannot be stripped, and you will need to pay the unpaid HOA dues in your Chapter 13 plan. Additionally, all post-petition HOA dues will still be your responsibility if you intend to continue living in your property.
Whether you would like to keep or surrender your property, you should consult with a bankruptcy attorney regarding your unpaid HOA dues. Contact us toll free at 1-877-9NEW-LIFE or 1-877-963-9543 today for a free consultation.