Due to the decrease in home prices, many debtors in the past few years have filed Chapter 7 bankruptcy while owning real property that they plan to surrender to their lender. Some debtors have owned more than one house or condo for which they can no longer make payments.
A large percentage of real property interests have fees that come due every month. Such fees are often classified as Homeowner’s Association (HOA) fees or Condominium membership fees.
When a debtor files Chapter 7 bankruptcy, the unpaid fees that they have missed “prior to” the date of the bankruptcy filing are discharged (eliminated). However, due to Section 523(a)(16) of the Bankruptcy Code, fees that come due and payable “after” the bankruptcy is filed are the responsibility of the debtor until the ownership of the property changes through foreclosure or sale.
In today’s housing climate, lenders often wait far longer than they used to when foreclosing on real property. This delay may have an adverse effect on a Chapter 7 debtor who has filed a bankruptcy case and has moved out of the property. Because the debtor still has an ownership interest in the property until it is sold, the HOA fees, or condominium membership fees (or other similar fees) will continue to be the debtor’s responsibility until the title changes after sale.
In most cases, the HOA fees will not be high enough to influence the timing of the bankruptcy case, but it is important for debtors to be aware of this responsibility after the case is filed. It may also cause some debtors to assist the lender as much as possible with the foreclosure if they have already moved out, or if they are planning to move out, and are committed to allowing the property to go through foreclosure.
It is important for those considering Chapter 7 bankruptcy to understand which debts will be discharged, and which debts will not. It is often wise to consult with an attorney to discuss the exceptions to discharge in a Chapter 7 case prior to filing.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com .