HOA Dues in Bankruptcy

Many debtors who file bankruptcy own real estate. Many debtors who own real estate, also have homeowners associations. So when you have homeowners association dues, the question is what happens to those homeowners association dues during bankruptcy.

The first scenario is the debtor is current in dues when he files bankruptcy. If that’s the case, the debtor, whether in Chapter 7 or Chapter 13, will presumably continue to pay the dues if the debtor is keeping the home. In fact, the Chapter 13 debtor must mean maintain current status on the homeowners association dues if the debtor is keeping the home. As in a chapter 7, the debtor is not in a repayment plan, they do not have to remain current as far as the courts concerned.

The debtor is liable for Association dues that occur after the date of the bankruptcy filing until the debtor ultimately gets off title, whether that’s through a short sale, foreclosure, or a regular sale. The debtor will remain liable regardless of the fact that the debtor filed bankruptcy.

The next scenario is the debtor is in arrears at the time they file bankruptcy. If it is a chapter 7, the debtor’s arrears at the time they file bankruptcy are discharged. The Homeowners Association might still have the ability to obtain payment from the debtor for those dues because the homeowners Association might have a lien on the debtor’s property, which will depend on your state law. For instance, as a Forsyth County bankruptcy lawyer, I have to deal with the fact homeowners associations get automatic statutory liens when a debtor defaults.

If the debt is a lien, while the homeowners Association is not technically owed a debt and cannot sue the debtor for money, the lien would ultimately have to be satisfied if the debtor wishes to sell or refinance the house. In a Chapter 13, if the debtor has arrears, the debtors homeowners association arrears will be paid off of in full by the time the debtor completes her chapter 13 plan, assuming the debtor wishes to keep the property. If the debtor does not wish to keep the property, the homeowners association arrears will fall into the debtor’s unsecured debt pool. In that scenario, the debtor will pay them off in the same pro rata percentage that the debtor pays their other unsecured creditors.