Many debtors that I assist are not aware that Homeowner’s Association Fees (HOA Fees) can often be discharged (removed) in a Chapter 7 bankruptcy filing. The assumption many debtors make is that the debt must be paid if they want to keep their home, or that the debt is automatically secured. In many cases, however, the past due HOA fees are not secured by the home.
In order to obtain secured status, which would give them the right to foreclosure, a Homeowner’s Association must first place a lien on the property. Many associations do not do that until the homeowner has missed several payments. I have seen cases where the homeowner is 6 months behind and no lien has been placed on the property.
In cases where there is no lien at the time the bankruptcy is filed, the debt is still unsecured on that date, and thus it can be discharged. The Association cannot place a lien on the property after the bankruptcy case is filed for debts that were incurred prior to the filing date. The only way they can place a lien after a bankruptcy is filed is if the debtor misses new HOA fees that come due “after” the case is filed. HOA fees that come due after the bankruptcy filing date are not discharged, so the debtor is liable for any post-bankruptcy HOA fees incurred while they own the property.
In cases where the Homeowner’s Association has recorded a lien on the property prior to the filing of the case, the debt is secured. The debtor can discharge the secured debt as to themselves, but they may not be able to remove it from the property. Thus, the Association could attempt to foreclose on the property to cover their debt. The Association could not directly pursue the debtor through wage garnishment or bank levy because of the discharge, but many debtors will pay the debt when it is secured to avoid losing their home (as they would with their mortgage loan(s)).
When considering filing bankruptcy, it is important to advise your attorney of all your debts to make sure you include all potentially dischargeable debts in the bankruptcy schedules.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com