Homeowners Association Fees in Bankruptcy Cases
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Your Homeowners Association in Bankruptcy

October 21, 2011



A recent report on Patch.com highlights how one provision outlined in the Bankruptcy Abuse Prevention and Consumer Prevention Act (BACPA) of 2005 could mean that bankruptcy filers are on the hook for the hefty homeowners association fees even after they surrender their home in bankruptcy court.

That’s because BAPCPA specifically designates fees accrued by a bankruptcy filer after filing for bankruptcy as nondischargeable, meaning they cannot be forgiven as part of the bankruptcy case.

Prior to the introduction of the new law, bankruptcy judges were able to make discharge decisions based on the individual conditions of a filer’s case – a struggling homeowner losing her house to foreclosure, for example, would have been a likely candidate to have homeowners associations excused.

The case of the woman profiled by Patch.com highlights just how troubling the BAPCPA provision can be: after filing for bankruptcy in 2009, the woman moved out of her house and the mortgage company began taking steps to sell it at auction.

The house sold after several months on the market, while the former owner was living elsewhere. But because her name remained listed as the house’s owner, the homeowners association in her neighborhood continued to charge her membership fees during that period. When she refused to pay, the association brought a lawsuit against her.

Eventually, the woman settled with the homeowners association, and is currently making regular payments to cover the membership fees she missed as well as fees for managing her account and hiring legal help. She chose not to take the matter to court because the law is clear in that the homeowners association had every right to continue charging her its fees.

Consumer advocates have criticized BAPCPA in the past for being less than friendly to bankruptcy filers. Analysts of the above case have cautioned that the most effective way to avoid unexpected fees and costs during a bankruptcy filing is to enlist the help of a bankruptcy lawyer to advise about relevant laws and suggest which type of personal bankruptcy is most likely to help meet a filer’s individual needs.

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