I get calls from unit owners all of the time clamoring about why their condo association is still attempting to collect unpaid assessments from them AFTER they file for Chapter 7 bankruptcy. There are a few considerations unit owners must keep in mind. First, if your condo association has filed a lien against your unit, then the debt is secured. This means that even if you file for bankruptcy the debt will not be discharged because it is secured. If your condo association has not filed a lien before the date you file your petition for bankruptcy, then the unpaid assessments are unsecured debt and thus not collectible as of the date of your petition. However, you are responsible for all condo fees that accrue after your petition is filed as long as you still hold title to the property. Even surrendering the property as a part of the bankruptcy does not absolve you of this responsibility unless the bank takes the title to the property. Many banks avoid immediately taking title of bankrupt property to delay paying assessments, insurance, and other costs associated with property ownership.
Second, if you have abandoned the property and filed bankruptcy, you can allow the association to foreclose on the unit. If there is an active bankruptcy case, the association has to get permission from the bankruptcy court to foreclose on the property. If the court grants permission and the association goes forward with the foreclosure proceedings, the bank will either pay the condo fees or enough of the fees to avoid losing their mortgage lien (in D.C.), or do nothing and allow the property to be sold at a foreclosure auction, in which case their lien will be extinguished (again, in D.C.). However, if there is a deficiency amount left from the sale, the association could go after you for the past due amount. Many associations do not do this because of the money it will cost them to pursue owners through the court process, but all unit owners should be mindful of this possibility.
Finally, if you wish to keep your property, you should be aware of the possible liabilities and work with your condo association to create a payment plan. This is the safest way to keep your home.
Written by Yaida Ford
Yaida represents unit owners and community associations in Washington, D.C. and Maryland