Bankruptcy may not resolve homeowners' dues / LJWorld.com

Business

By David W. Myers

November 14, 2008

Filing for bankruptcy may help credit-card debt disappear, but it won't necessarily allow the millions of those who live under the auspices of a local homeowners association to skirt unpaid homeowners association bills.

Q: We live in a townhome development, and the fees we pay to our homeowners association have been going up almost 20 percent annually for the past several years. I lost my job earlier this year, and we have fallen three months behind on our HOA dues. If we file for bankruptcy, can the association still try to force us to make up for the missed payments, or file a lien against our home if we don't?

A: It depends on a variety of factors, including the date that you're thinking about filing for bankruptcy and the steps that the HOA has already taken to collect your delinquent payments.

Bankruptcy laws were seriously tightened by the federal Bankruptcy Abuse Prevention and Consumer Protection Act, which took effect almost exactly three years ago. Though the law has made it much more difficult for consumers to "qualify" for a bankruptcy filing, it also specifically addresses the rights and obligations of both a homeowner and an HOA when a bankrupt owner is in arrears on the association's monthly dues.

If the association hasn't yet slapped a lien on your property for the unpaid dues, the act provides the bankruptcy judge the ability to discharge some or all of the dues and special assessments that you didn't pay before your filing date. But this is no get-out-of-debt-free card: Any dues or assessments that are levied after the filing generally cannot be discharged and instead will have to be paid.

In addition, if the HOA has already put a lien on your home for the unpaid dues (or puts one on it later if you get behind after the Bankruptcy Court's discharge), the association can usually go forward with foreclosure action against your house just as a bank could if you didn't pay your mortgage.

You'd be wise to consult both a bankruptcy lawyer and a local real estate attorney for details.