Changes in the Law Affecting HOA Collections in Chapter 13 Cases
In a significant reversal of current case law, the 9th Circuit Court of Appeals recently ruled that post-petition HOA assessments are dischargeable in a chapter 13 bankruptcy case.
The opinion, in Goudelock v. Sixty-01 Ass’n of Apartment Owners, 895 F.3d 633 (9th Cir. 2018), was handed down July 10, 2018. The Court held that the obligation to pay assessments arises when a property is purchased, and the ongoing monthly assessments are simply a contingent or unmatured form of the debt. In so doing, the Court concluded that the debtor/owner’s obligation to pay future assessments is dischargeable under Chapter 13 of the Bankruptcy Code. The Court did note that a community association’s ability to obtain stay relief and foreclose remains unaffected.
Do not despair; in many cases, there are steps that can be taken to protect a community association’s ability to collect post-petition assessments and other charges. However, as a result of the Goudelock decision, it is critical that a community association take swift action whenever it receives notice of a new chapter 13 bankruptcy case. Failure to do so could result in the community association being forever unable to collect against a bankruptcy debtor personally for post-bankruptcy assessments and other charges, even if the bankruptcy debtor continues to own the property in the community. Immediate changes should also be made to existing collection practices to avoid violating the automatic bankruptcy stay. We recommend that community associations contact legal counsel to determine what action should be taken in chapter 13 cases and to discuss changes to existing collection practices.