Many clients call us asking, “Can I discharge HOA dues in Chapter 7 Bankruptcy?” The answer is not as straightforward as it may seem. Typically, a bankruptcy allows for unsecured debt to be wiped out or discharged. To provide a clear answer for this, there are additional factors to go over:
What do the Covenants, Conditions and Restrictions (CC&Rs) say?
Homeowners’ associations establish CC&Rs that outline the rules and regulations of living in the community. By purchasing within that community, a homeowner is agreeing to abide by them. A review of these guidelines will help to determine what the rights of the HOA are and the rights of the homeowners.
Are the debts for assessments or covenants?
The assessments are fees that the HOA imposes each month and as such, are regular debts. Covenants are tied to the land itself and cannot be discharged in bankruptcy. Since most HOA fees are for assessments, it is highly likely that one can discharge them during a Chapter 7 Bankruptcy.
What if there are liens against the property?
It is best to attempt to discharge these debts before a lien is placed on the property. after placing a lien on the property, the process of discharging them becomes far more complex. However, HOA liens are typically behind the mortgage. Thus, it is rare for an HOA to ever try to foreclose on a property since it is equally unlikely that they will be paid in this scenario. The best case for them getting paid is typical to wait until the property sells on the open market, rather than through a distressed sale.
Are there options if the HOA has already recorded a lien?
after the HOA records a lien, there may still be possible options available. Since each scenario is different, it is best to receive legal advice based on the individual situation. In this situation, we recommend scheduling a consultation.
What if I am surrendering my property?
If you decide to surrender your property in a bankruptcy, any debts associated with that property will be wiped out and that includes any HOA liens. It is rare for the HOA to receive any money since homes are surrendered when there is not very much equity in them. Still, a secured HOA lien should not follow you.
Should I file for Chapter 13 Bankruptcy instead?
If you are wondering “Can I discharge HOA dues in Chapter 7 Bankruptcy?” and this is the main reason for filing for bankruptcy, let us know. We will go over all debts and your income before making a recommendation as to the type of bankruptcy you should file for. There are also qualifying factors that must be discussed since not everyone can file for a Chapter 7 Bankruptcy.
The difference between the two is that a Chapter 7 Bankruptcy allows for unsecured debts to be wiped out or eliminated where a Chapter 13 Bankruptcy involves the creation of a repayment plan. To learn more about these options and how to address HOA fees, call our office and schedule an appointment.
NOTE: This is for informational purposes only and does not constitute legal advice.