Written by Charleston Bankruptcy Lawyer, Russell A. DeMott
Homeowners’ dues can be an important consideration in your bankruptcy. And by “homeowners’ association dues,” I’m including condo dues and other dues–by any name–which must be paid as part of your regime.
Unpaid dues are a lien on your property
Whether you’ve filed bankruptcy or not, unpaid dues are a lien on your property. A “lien” is a property right given to another which secures payment of a debt. If you take out an auto loan, the lender has a lien on the car (called a “security interest”). If you don’t pay, you lose the car. If you take out a mortgage, the lender has a lien (called a “mortgage”). You get the picture.
Unpaid homeowners’ dues are a lien as well. And, generally speaking, if you have unpaid dues creating a lien prior to bankruptcy, you have that lien after bankruptcy as well. The general rule is this: “liens survive bankruptcy.”
But why do I care?
You might not need to care. For example, if you’re surrendering the home–maybe it’s getting foreclosed anyway–you wouldn’t worry about this. However, if you’re keeping your house, you would care–you don’t want another lien on the property. You’d need to meet with your association and get the issue resolved. In a Chapter 13 you would “cure” the arrearage on those unpaid dues over the life of your plan. If you filed Chapter 7, you would just need to resolve the arrearage with your association if you wanted to keep the home.
And then there’s personal liability
With almost any lien situation (mortgage, car loan, home owners) there’s not just the lien, there’s the personal liability. If you don’t make your car payment, the lender can sell the car, then you’re responsible for the difference. Why? Because the car note makes you personally liable for the debt. The same goes for homeowners’ association dues.
New section 523(a)(16)
Section 523 lists various debts which are not discharged in bankruptcy. Section 523(a)(16) provides that homeowners’ association dues which become “due and payable” while the debtor or the trustee owns the property are not discharged in bankruptcy. If the amount is substantial, you may want to hold off filing until after the foreclosure has occurred. However, there are other concerns which should be considered. Just because you qualify for a Chapter 7 now does not mean you will later. In most instances, it’s better to file while you qualify rather than delaying filing. In addition, if you’re getting rid of all your other debt, a (relatively) small association debt can usually be settled for far less than the balance due.
The important thing about homeowners’ association dues is to understand what your exposure is and to weigh other concerns against your exposure to post-bankruptcy liability.