After a bankruptcy discharge, your ongoing liability to your home owners association lives on.
It’s the debt that won’t die.
Bankruptcy discharge and HOA dues
The bankruptcy discharge wipes out your personal exposure to unpaid, unsecured HOA dues owing when you filed your bankruptcy.
If the HOA had a perfected lien, the lien for pre bankruptcy dues survives, even though you have no personal liability for the dues.
In that regard, it’s like your mortgage: after bankruptcy, the mortgage lender can’t get a judgment against you for money, but it can foreclose on the property if you are in default.
But dues for any period after the bankruptcy case is filed can be collected just as if the bankruptcy never occurred.
HOA dues after bankruptcy
This continuing liability for HOA dues was added to bankruptcy law with “reform” in 2005.
Obligations for dues to an HOA that arise after the filing remain a personal liability of the bankruptcy debtor as long as the debtor or the bankruptcy trustee has either possession or an ownership interest in the condo unit. 11 U.S.C. 523(a)(16).
New 2018 9th Circuit decision includes HOA dues that came due during the Chapter 13 in the discharge.
While that seem fair if you continue to live in the unit and get the benefit of the common areas and common services, it exposes you to ongoing liability if you move out, want to surrender the property, or the bankruptcy trustee attempts to sell the property.
Breaking up is certainly hard to do, in those circumstances.
The HOA fix
If you are letting the condo go, you can lessen your exposure to HOA dues after your bankruptcy in several ways.
- Wait to file bankruptcy until a foreclosure sale is scheduled. Putting as much of the debt as possible into the pre bankruptcy period reduces the likely post bankruptcy period for which you are liable.
- Rent out the condo til foreclosure. If you have moved out and moved on, a short term rental of the condo while you wait for a foreclosure sale could provided cash to pay the HOA dues.
- Tender a deed in lieu of foreclosure to the HOA. By getting off title to the condo, you end your liability for the associated dues.
- Pay the dues as long as you live there. Treat the HOA dues as very cheap rent if you continue to live in the condo awaiting a bank foreclosure. HOA dues are undoubtedly a fraction of what you’d pay for rent when you move. Pay them as you go, and when you leave, you are clean.
By planning ahead, you can lessen any shadow that post bankruptcy HOA dues cast on your fresh start.
More about filing bankruptcy
Can I sell stuff before filing bankruptcy?
When you want to wait to file bankruptcy
Image courtesy of Flickr and Roger4336.