HOA Fees are Non-Dischargeable in Bankruptcy

A homeowner that owns property subject to homeowners association (“HOA”) dues or fees should be familiar with 11 U.S.C. §523(a)(16) if they are contemplating bankruptcy.

Section 523(a) provides that a discharge under Chapter 7 (§ 727), Chapter 11 (§ 1141), Chapter 12 (§ 1228(a) & (b)), or Chapter 13 (§ 1328(b)) does not discharge an individual debtor from any debt–

(16) for a fee or assessment that becomes due and payable after the order for relief (generally after the bankruptcy petition is filed) to a membership association for as long as the debtor has a legal, equitable, or possessory ownership interest in the property subject to the fee or assessment.

The section is not quoted in detail, but the message should be clear: even if you file bankruptcy and receive a discharge, any fees or assessments that become due after the filing of your bankruptcy (post-petition) remain your responsibility as long as you have a legal, equitable or possessory interest in the property. Even if the property is in foreclosure, the post-petition fees and assessments remain your responsibility until the foreclosure sale actually takes place and you no longer own the property. Don’t be lulled into a false sense of security because a foreclosure sale date has been set. The filing of the bankruptcy petition will prevent the sale from taking place until the stay is lifted and foreclosure sales often get continued.

In chapter 13, debtors often receive a discharge under section 1328(a), which is not included in the sections cited above for which the discharge does not apply. Section 1328(a) gives a “super discharge” and seems to discharge obligations under section 523(a)(16). A debtor in the State of Washington recently attempted to use section 1328(a) to discharge post-petition HOA fees. Although applying Washington law, the 9^th Circuit Bankruptcy Appellate Panel held that the post-petition HOA fees were not dischargeable under section 1328(a) because the obligation to pay the fees was not in the nature of a claim but rather an obligation that ran with the land. (In re Foster, 435 B.R. 650 (9^th Cir. BAP, 2010).) This is consistent with the reason most people file chapter 13: to save their homes and be allowed to cure defaulted payments and make current payments.

A similar law exists in California, so debtors who file chapter 13 in California should not expect to discharge post-petition HOA fees as long as they own their homes. Contact a bankruptcy attorney in California if you have specific questions about your bankruptcy.