Do I Have to Pay My HOA Dues After I file Chapter 7 Bankruptcy?

While the idea of a Homeowners’ Association (HOA) doesn’t appeal to everyone, for some folks in the Denver metro Area, especially in suburbs like Highlands Ranch and Parker, these associations help ensure every house and yard in a neighborhood is kept up to the community’s standard, and keep up common areas such as community parks and pools. For condominium owners, these associations are essentially necessary, as they ensure common areas in and around the condominium are kept up – likely something no condo owner has the time, resources or inclination to handle on his or her own.

But HOA dues, condominium dues, and the like can also be a major expense, and if your financial life is falling apart around you, they may not be anything you can even consider paying after covering the essentials like food, gas and the car payment.

So if you file for chapter 7 bankruptcy relief in in the Denver area, or elsewhere in Colorado, what’s going to happen with your obligation to pay these dues?

First, a bankruptcy attorney must know your plan concerning your home. If you wish to keep the property, the question of your HOA dues doesn’t matter as much – you simply need to pay all proper fees and assessments. This is basically any charge authorized by the HOA Board and allowed by the  “declaration” the HOA has recorded in the county real property records, which can include interest, late fees, and attorneys fees, in addition to the regular dues and any special assessments.

In other words, if you want to keep your home, chapter 7 doesn’t give you much debt relief, apart from a limited protection against the demand you personally pay any dues or assessments which were past-due on the date you filed for bankruptcy. That isn’t going to mean much, because the Homeowners Association could still foreclose on the home under state law for non-payment.

What if you want to sell your home yourself after you file your chapter 7?

First, if you’re still in chapter 7, you’ll need to either request the trustee formally abandon your property, or file your own motion for abandonment or to sell the property. Next, because the HOA assessments are a continuing statutory lien on your property, you’ll need to ensure you’ll receive sufficient proceeds from the property’s sale to cover any past-due HOA bills, and any new assessments or fees which have arisen since filing. This can be a major expense, especially in situations where payments were significantly past-due when the case was filed, as this usually means an attorney was involved in the collection efforts, and is billing you as the homeowner pursuant to your deed of trust and HOA or Condominium “rider.

What if you just want to let the home be sold at foreclosure, or to sign a “deed in lieu” of foreclosure with the mortgage company? In either case, the good news is that you will not be liable for any assessment or fee which arose before you filed your chapter 7 case. The bad news is that you’ll remain personally responsible for any assessment or fee which arose after you filed your bankruptcy case. This is because section 523(a)(16) of the Bankruptcy Code specifically excepts from discharge “any debt for a fee or assessment that becomes due and payable after [case filing] with respect to the debtor’s interest in” the HOA, Condo Association, or other “cooperative corporation” so long as you have any ownership interest in the subject property. In other words, even if you move out, you’re still responsible for payment until some person (or bank) other than you becomes the legal owner.

So how to handle this situation? In some cases, Debtors in chapter 7 have allowed another person to occupy their home and pay the HOA dues as a form of “cheap rent.” This isn’t always advisable, but it potentially can be a good solution that also allows the debtor to help a down-on-their-luck friend or relative.

Another option may be to file for chapter 13 protection, in which case your HOA dues may be treated much differently than in chapter 7. More on that later.