Bankruptcy

Exceptions to Discharge: those Pesky HOA Dues! The Bankruptcy Blog Sneers.

By Joseph McDaniel, Esq.

I don't like seeing people get hurt, and I especially don't like seeing my personal bankruptcy clients suffer, but I can fix some issues, and not others, in the area of personal and small business bankruptcy cases in Arizona.

One that I can't fix that works its random mischief is the exception to discharge enacted as to homeowners association dues; all I can think is that HOAs have very good lobbyists in Washington. And ordinary decent citizens of the United States, on the other hand, don't.

With this consequence:

11 USC § 523. Exceptions to discharge

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt?

(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case;

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Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), any HOA fees incurred prior to filing bankruptcy would be discharged through the bankruptcy process; any fees incurred after the filing of the bankruptcy case would not be discharged as long as the homeowner physically lived in the house.

However, with the passage of BAPCPA, the language of the Bankruptcy Code was changed. Now, in a Chapter 7 bankruptcy filing, any HOA fees incurred prior to filing bankruptcy are still discharged, however, any HOA fees incurred after the filing of the bankruptcy case are not discharged so long as the homeowner owns the house. This change means that if a homeowner files for bankruptcy, moves out the house, does not pay the HOA assessments, and then the house is sold (e.g. by the homeowner, lender, etc.) six months later, the homeowner is still personally liable for the HOA fees incurred from the date the bankruptcy case was filed until the day the property is actually foreclosed upon.

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Did everybody get that?

Now it doesn't matter if you stay in your house or don't.

What matters is an issue you have zero control over, which is when the Bank finishes up its trustee's sale, or mortgage foreclosure.

So if the bank is lazy, confused or stupid, you may be on the hook for homeowner's fees after your bankruptcy discharge, and that irritates the dickens out of me because it interferes with the fresh start and discharge that I want all my clients to have after they've gone through their consumer bankruptcy here in Arizona.

And I can't do a thing about it, except to complain about it.

But now, at least, I feel better!

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on June 10, 2010 (boomark / email).