Chapter 7 may relieve homeowners of past-due fees owed to the HOA. Yet, any new fees that arise after filing, including fees accrued during the bankruptcy process, likely won’t be dischargeable. Homeowners planning to stay in their homes should account for these ongoing payments in their budget even as they proceed with Chapter 7.
Chapter 7 bankruptcy offers the potential for discharging unsecured debts, such as credit card balances and medical bills, by liquidating non-exempt assets. The process aims to help eligible filers wipe out certain debts entirely. However, HOA debt falls into a unique category with specific legal considerations, which makes its dischargeability more complicated than other types of debt.
Understanding how Chapter 7 bankruptcy treats HOA debt requires looking at both when the debt originated and the specifics of bankruptcy law. Let’s explore whether Chapter 7 can effectively discharge HOA debt and what homeowners should consider before filing.
How Does HOA Debt Accrue?
HOA debt arises when a homeowner owes fees, assessments, or fines to their homeowners’ association. These payments contribute to shared amenities, upkeep of common areas, and other neighborhood improvements. Because HOAs directly impact the quality and upkeep of a community, most HOAs have strict requirements regarding payment and often impose fines or legal actions when payments fall behind.
While Chapter 7 can discharge certain debts, HOA obligations are generally considered tied to property ownership and, in many cases, continue even after filing for bankruptcy. Courts often treat HOA fees as ongoing obligations as long as the homeowner retains ownership of the property. So, even after discharging debts in Chapter 7, homeowners who keep their property may still owe future HOA fees.
Post-Filing HOA Debt & the Limits of Chapter 7
The limitations of Chapter 7 on HOA debt extend primarily to fees that continue to accrue after filing. When a homeowner files for Chapter 7 and retains ownership of the property, HOA fees due after the filing date don’t fall under the dischargeable debts. Bankruptcy law generally views these fees as a responsibility tied to ongoing property ownership. So, while pre-filing fees may be dischargeable, fees arising post-filing typically remain the homeowner’s responsibility.
For example, a homeowner who files for Chapter 7 in January might discharge all HOA fees owed up to that date. However, any fees due from February onward would still need to be paid. This distinction can impact homeowners deciding whether to retain or surrender their property, as continuing HOA obligations may add up over time and impact long-term affordability.
What Happens If You Surrender the Property?
Homeowners who surrender their property as part of Chapter 7 bankruptcy may avoid ongoing HOA fees, but the process can be complex. When a homeowner gives up their property, they effectively relinquish ownership, which may eliminate future HOA obligations. However, until the lender officially completes the foreclosure process or repossession, the homeowner technically remains responsible for any HOA fees.
The timeline for foreclosure can vary, sometimes lasting months or even longer, depending on state laws and lender actions. During this period, the homeowner may still receive HOA bills despite having filed for Chapter 7 and expressed intent to surrender the property. Working with a bankruptcy attorney to navigate this period and understand local foreclosure timelines can help homeowners avoid unexpected fees and plan accordingly.
Contact Us for Legal Assistance
Navigating bankruptcy can feel like a daunting task, but you don’t have to go through it alone. Our experienced team at Buchalter & Pelphrey understands the unique challenges that come with financial hardship, and we’re here to help you find the right solutions to regain control. From understanding your options in Chapter 7 or Chapter 13 to guiding you through each step, we provide support that’s tailored to your goals and needs.
Contact us for help with bankruptcy today and take the first step toward a fresh start.