Lansdale, PA asked in Bankruptcy and Real Estate Law for Pennsylvania

Q: If I file for bankruptcy and own a property in a HOA, what happens when I have a balance with them?

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2 Lawyer Answers
Timothy Denison
Timothy Denison
Answered
  • Bankruptcy Lawyer
  • Louisville, KY

A: It is probably a lien against the property and will still have to be paid.

W. J. Winterstein Jr.
W. J. Winterstein Jr.
PREMIUM
Answered
  • Bankruptcy Lawyer
  • Boyertown, PA
  • Licensed in Pennsylvania

A: Most HOA's ownership interests are linked to periodic "maintenance fees", for ongoing maintenance of common areas, and if not promptly paid, become a lien, like your Mortgage, against your ownership interest. Once a bankruptcy is filed, the HOA indebtedness will most probably be treated as a secured claim by the bankruptcy court, and will also most probably "prime", or enjoy a higher priority, than the Mortgage debt.

In a Chapter 7 case, which typically remains open in the court for about 3 months, there will be no discharge of the HOA debt, both accumulated and ongoing periodic charges, much like your Mortgage indebtedness. Once your Ch. 7 discharge is entered by the court, your property interest reverts to you, subject to the HOA lien, as well as your Mortgage, and must be paid, and the Association will be able to proceed in court to enforce/foreclose its lien, just as the holder of your Mortgage debt, if any, could do if the payments are in default.

In a Chapter 13 case, any arrearages/overdue balances in the HOA debt for past missed payments will be paid through your bankruptcy Plan, over three to five years, just as the arrearages, if any, in your Mortgage indebtedness. The plus is that, in a Chapter 13, the arrearages in the secured debts do not earn interest. But within 30 days of the Ch. 13 filing date, you will be required to resume regular payments directly to both your Mortgagee and the HOA.

I'd have to examine your HOA documents, and a title search of your property and liens, to determine whether your secured claims have been "perfected", by a proper recording of the liens by the creditors. If not properly recorded, you may be entitled to treat the claim(s) as unsecured, and perhaps dischargeable.

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