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Homeowners Association (HOA) Dues in Bankruptcy

HOA in BankruptcyHomeowners Association (HOA) dues as a debt present a unique situation under bankruptcy. HOA dues are assessments collected from a homeowner who owns property in a common interest community. Therefore, if a debtor owns a condo in a condominium, he or she will likely pay monthly association dues.

HOA Rights

If a debtor is delinquent on his or her homeowners association dues, California’s Civil Code allows the HOA to secure this debt. The association can secure it through a lien against the debtor’s property without going through the judicial process. However, if the association dues are unsecured, it is the only type of unsecured debt that the debtor will begin incurring again immediately after the bankruptcy is filed. Furthermore, Congress gave HOA dues special treatment in the 2005 revamp of the bankruptcy code by specifically addressing the issue. 11 U.S.C. § 523 states in part, “a fee or assessment that becomes due and payable… to a membership… or homeowners association” after filing for bankruptcy are exempt from discharge.

HOA Dues After Filing Bankruptcy

What this means is that a debtor will still be liable for paying all post-petition HOA dues. In other words, the debtor must pay all association fees that come due after filing the bankruptcy case. This should be pretty clear if the debtor intends to keep his or her condo after filing bankruptcy. Since the debtor will remain titled to the property, he or she would be responsible for the condo’s dues.

However, should the debtor choose to surrender the condo, he or she would still be liable for the association dues until the bank takes title to the property. The debtor would be on the hook even if he or she is not living in the condo, has no tenant occupying the premises, and have indicated to the Court of an intent to surrender it. If the debtor fails to pay on the dues, the HOA has all the tools of a normal creditor to try to recover the unpaid dues, such as sue them in court, garnish wages, or levy bank accounts.

Avoiding HOA Fees and Other Charges

Because of the nature HOA dues in bankruptcy, debtors should consider this issue when they own a condominium. It is almost always better to continue to pay any association dues until the debtor is absolutely sure that the property is no longer in the debtor’s name.