Tuesday, May 3, 2016

Law Unsettled on Liability for Post-Chapter 13 Association Assessments

By:  Janet L. Bozeman

If a condominium unit owner files for bankruptcy protection under Chapter 13 of the Bankruptcy Code and continues to own the unit, should the owner be responsible for future assessments by the condominium association?  Most people would say, "Yes."  After all, why should the unit owner reap the benefit of the association's maintenance and insurance and, in some cases, the provision of services and utilities to the unit for free?  Unfortunately, that is the result in some jurisdictions where the bankruptcy courts have relieved the unit owner of assessment responsibility.

State condominium law generally creates two types of liability for association assessments – the personal liability of the unit owner and the in rem liability (property liability) of the unit.  The unit's in rem liability means that the association has a lien against the unit for unpaid assessments.  The owner's personal liability means that the association can sue the owner to obtain a money judgment.  Once a money judgment is obtained, the association may pursue any of the owner's assets to satisfy the judgment, including garnishing the owner's bank accounts and wages.

The bankruptcy courts are in agreement that a Chapter 13 bankruptcy does not affect the association's assessment lien against the unit.  However, there is a split in authority among bankruptcy courts as to whether a unit owner remains personally liable for assessments by a condominium or homeowners association after the owner completes a Chapter 13 bankruptcy plan.  A Chapter 13 bankruptcy allows the owner/debtor to create a plan for paying all or a portion of his or her pre-bankruptcy debts.  The plan must be approved by the bankruptcy court and may include discharging or relieving the debtor of responsibility for some pre-bankruptcy debts.