If you file Chapter 13 bankruptcy and you owe money to a homeowner's association (HOA), there are special considerations you should keep in mind. What happens to HOA dues and whether you should pay them depends on a combination of:
your intention to keep or surrender the home in the Chapter 13 bankruptcy
whether you incurred the HOA dues before or after you filed the Chapter 13 petition, and
the laws of your state and bankruptcy court.
Pre-Petition HOA Dues
Generally, HOA dues that accrued pre-petition are treated as secured claims so long as the home is titled in your name. This is because most states allow unpaid HOA dues to be reduced to liens on your property. Consequently, your Chapter 13 plan must provide for payment to the HOA claim. The pre-petition HOA claim may be treated differently depending on whether you keep or surrender the home:
If you intend to keep the home, the pre-petition HOA dues must be paid 100% in the plan (with exceptions discussed below).
If you intend to surrender the home, the pre-petition HOA dues may be treated as an unsecured claim in your Chapter 13, but the HOA may still execute on its lien outside of bankruptcy. Your personal liability on the pre-petition HOA dues (to the extent they are not satisfied from the foreclosure sale or other disposal of the property) would be discharged upon completion of your Chapter 13.
Post-Petition HOA Fees
In a Chapter 7 bankruptcy, post-petition HOA fees are not dischargeable. You would remain personally liable on post-petition HOA fees, until such time as the property is sold or transferred. However, in a Chapter 13 bankruptcy, post-petition HOA fees may be dischargeable, depending on the laws of your state. The HOA may still have a claim against the property.
This may make a difference to you if you retain or surrender your home in a Chapter 13.
Keeping the Home
If you intend to keep your home in a Chapter 13, you should continue to pay HOA fees as they become due and payable post-petition. You would do this by paying the HOA directly or through your Chapter 13 plan. If you do not pay the HOA dues post-petition, then those dues will attach to the home as any other lien. They may also not be discharged, depending on whether your bankruptcy court treats the continuous assessments as a pre-petition (rather than post-petition) claim.
Surrendering the Home
Bankruptcy laws vary on how to treat the post-petition HOA dues if you decide to surrender the home in a Chapter 13. Some bankruptcy courts may allow you to discharge the post-petition HOA dues upon completion of your Chapter 13 plan. This means you would not be personally liable for payment of those dues. However, the HOA may be allowed to retain an interest in the property as a secured creditor to the extent of its lien for the HOA fees and costs. That means it can pursue its lien through foreclosure.
Other bankruptcy courts will not discharge the post-petition HOA dues. You may still remain liable for those fees until the home is actually sold or transferred out of your name.
For more information, you should consult with a local bankruptcy attorney or research the bankruptcy laws of the district that has or will handle your Chapter 13 bankruptcy.
Exception: Avoiding an HOA Lien?
You may be able to avoid or reduce the amount of the HOA's secured claim if the bankruptcy court treats it as a statutory lien. This is important because statutory liens in a Chapter 13 can be avoided or stripped down to the extent they impair your equity in the property. (To learn more, see Lien Stripping in Chapter 13 Bankruptcy.)
This option is not available in every district, as bankruptcy courts disagree as to how to treat HOA secured claims. For more information, you should consult with a local bankruptcy attorney or research the bankruptcy laws of the district that has or will handle your Chapter 13 bankruptcy.
Claims Issues: Attorney Fees and Other Charges
If the HOA files a proof of claim, it will probably include extra fees and charges in addition to the normal dues. You may be able to object to those fees and charges, depending on whether or not the HOA is legally entitled to those charges under the laws of your State.
State laws vary on whether a homeowners association can collect attorney fees and other charges from you. In many states, HOAs are allowed to charge you attorney fees. As a general rule, if the HOA by-laws and/or articles allow attorney fees, late fees and other charges, then you are on the hook for those charges. Your state's statutes may also allow the HOA to charge you these fees even if the by-laws or articles don't say so. But that does not mean this right is open-ended. Usually, HOA attorney fees must be “reasonable.”
Even if the HOA is legally permitted to assess those fees and charges, bankruptcy courts are courts of equity. This means that they may have more flexibility in determining how much you would have to pay based on issues of fairness. If you believe that the HOA's claim includes illegal or unfair fees and charges, you may be able to object to its proof of claim. You should consult with a local bankruptcy attorney or research the attorney, or research how your bankruptcy court handles HOA claims in Chapter 13 bankruptcy cases.