Debtors are often surprised to learn that they can be held personally liable to pay their homeowner’s association (HOA)fees after filing for bankruptcy protection. This is true even if the debtor has moved out of the home and intends to surrender the home back to the mortgage lender in the bankruptcy case!
Pursuant to 11 USC 523(a)(16), debts are excepted from discharge if they are
“for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case . . . .
The language that triggers the liability is the portion that includes “legal, equitable, or possessory ownership interest" by the debter. When the debtor files a bankruptcy and moves out of his home, his ownership interests are no eliminated until the home is sold or foreclosed upon.
If you owe past due HOA fees and you are considering filing a bankruptcy case, you should discuss it with your attorney. In most cases, the liability for the HOA fees will be satisfied out of the eventual foreclosure or sale since it has priority over the foreclosing party’s lien. You may also decide to pay your HOA fees until the property has sold or been foreclosed. However, it may be wise for a debtor to save his HOA fees that come due after the bankruptcy filing in trust pending the outcome of the pending transfer. This way, if it becomes an issue, the debtor has the funds available to satisfy the liability. Most likely it will not become an issue and the debtor has a little savings account set aside.