COLLECTING ON UNPAID HOA ASSESSMENTS UNDER CHAPTER 13 BANKRUPTCY

A large part of our practice is the representation of homeowner’s associations. If you’re involved with your HOA, you know the importance of the homeowners in the community paying their assessments. Without the homeowners making these payments, the HOA is unable to provide amenities, care for common areas, or make needed improvements.

If a homeowner doesn’t pay, our firm will work with associations to collect these unpaid assessments. Often, this non-paying homeowner is having other financial problems, and may be forced to file for bankruptcy protection. If this happens, what should the HOA do?

When a homeowner files for bankruptcy protection, many HOA’s consider the debt uncollectable, and won’t pursue the homeowner any further. But, the HOA may still be entitled to the payment of the assessments. If a homeowner files Chapter 7, their personal liability may eventually be extinguished, but the HOA’s lien will survive the bankruptcy in most instances. This means that, if the homeowner attempts to sell or refinance the property in the future, the HOA may be able to recover the unpaid assessments.

If a homeowner files a “reorganization” bankruptcy, or a Chapter 13, the HOA will often be able to recover all of the unpaid assessments. The law requires that “secured” creditors, in most instances, be paid in full through the debtor’s reorganization plan. Almost all HOAs have a provision in their Declaration of Covenants that provides for an automatic “continuing lien” to attach to the property if assessments are not paid. This means that, as soon as a homeowner fails to pay assessments, the HOA has a “secured” claim. But, the HOA must take some affirmative action before the claim will be paid. Sometimes, all that will be required is for the HOA’s attorney to file a proof of claim with the court. Sometimes, the HOA’s attorney may have to file other pleadings in order to ensure that the debt will be paid.

If your HOA has any questions regarding bankruptcy, or for that matter, a question regarding the entire legal process of collecting assessments, give us a call. 

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