Written by Craig D. Robins, Esq.
Filing for bankruptcy enables consumers to discharge most debts. However, when the bankruptcy laws were radically changed six years ago through BAPCPA , various homeowners associations lobbied Congress for special protection.
Accordingly, not all homeowners association fees can be eliminated through bankruptcy.
We regularly meet with clients who are seeking to walk away from their homes since the real estate is underwater and no longer worth keeping. (An underwater home is one in which the homeowner owes more on the home than what is owed to the bank). Filing a bankruptcy can enable a homeowner to eliminate any obligation on a mortgage — even for an eventual deficiency judgment after a foreclosure.
However, as Long Island is home to a number of co-ops and condominiums, we have to be especially careful with the advice we give such clients.
Homeowner association (HOA) dues and fees, commonly known as maintenance, CAN be discharged in a bankruptcy proceeding — BUT only those dues and fees owed up through the date the bankruptcy petition is filed.
Any homeowner association dues and fees that accrue AFTER the petition is filed CANNOT be discharged. This provision is set forth in Bankruptcy Code § 523(a)(16) which states that a consumer cannot discharge a debt:
(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership , in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case.
Thus, as long as the consumer continues to own the co-op or condo, HOA fees will continue to accrue after filing, and the consumer will be responsible for those fees. This also applies to homeowners with townhouses in gated communities that have common areas and homeowners association dues.
This legal provision can create a difficult scenario if the consumer is seeking to walk away and abandon the home, especially since many lenders drag their feet with foreclosure process.
Basically, as long as the consumer continues to own the home, even if he or she does not reside there, the consumer is responsible for the post-petition HOA fees.
This means that the homeowners association can pursue the homeowner for these post-petition monthly charges, and sometimes that does happen. However, I believe most homeowners associations do not take such aggressive action and instead wait until the unit is sold at auction, at which time they deduct all outstanding HOA fees from the proceeds.