If you own a home/condo with a Homeowner’s/Condo Association, the dues you have to pay each month (or quarter) don’t stop just because you’re struggling with debt. If your financial struggles lead you to file for bankruptcy, your dues could affect your case. This article explains the basics of what could happen during your bankruptcy case if you own your home with an HOA/COA.
What are HOA/COA dues?
Community members contribute HOA/COA dues to help cover common-area insurance, landscaping, pools or gyms, regular maintenance, and, in some cases, reserves for major repairs. As a member, you are contractually obligated to pay your dues. If you do not, the association may record a lien against your property for unpaid dues, late fees, and, in some cases, fines.
HOA/COA Dues in Bankruptcy
If you file Chapter 7 bankruptcy, often referred to as straight bankruptcy, provides for the discharge of the consumer’s credit card and other unsecured debt. But, if the debtor wants to keep his or her home, the mortgage payments must be current. HOA dues are likewise not dischargeable in a Chapter 7 bankruptcy. If they are owed at the time the Chapter 7 bankruptcy is over, the HOA can resume collection efforts. If the association recorded a lien before you filed bankruptcy, it would typically remain in effect even after your Chapter 7 discharge and could continue to affect your property. You’ll want to take steps to handle it if you’re planning to sell, refinance, or clear the title. If you decide to surrender the property after filing, any subsequent dues may continue to accrue until the title is officially transferred through a deed-in-lieu, foreclosure, or closing.
In a Chapter 13 case, you create a court-approved repayment plan for your debts lasting between three to five years. Practically, that means you can spread out what you already owe to the association and protect your home while you catch upon the arrears. During this time, you’ll need to keep paying any new dues that come up. Think of it as two tracks: one for settling the past dues, and the other for handling ongoing association charges.
If the association recorded a lien, your Chapter 13 repayment plan can propose how to handle that lien. Paying it through the plan, challenging portions that aren’t secured, or addressing fees that aren’t allowed by the governing documents/state law. In some limited situations, if a junior association lien is fully unsecured by value (for example, where the first mortgage exceeds the property value), you may be able to do what is called lien-stripping which could significantly reduce what you owe on your home/condo.
Getting Help with Filing Bankruptcy
If you’re considering bankruptcy and you live in an HOA/COA community, getting help from a bankruptcy attorney can save you confusion and money by setting the right plan from the start. Brock & Stout’s experienced bankruptcy attorneys can review your situation and help you choose the approach that best protects your financial future.
Let our family help your family and contact us for a free evaluation.
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