Whether a particular debt is dischargeable or not is typically a straightforward question. However, the dischargeability of several types of debts are not always easy to ascertain. One such debt is condominium association dues. The Ninth Circuit Court of Appeals recently decided the issue in favor of debtors. Read on to learn more.
Not All Debts are Dischargeable in a Bankruptcy
The starting point for this discussion is this: not all types of debts can be extinguished in a bankruptcy. There is a whole list of debts that the court cannot discharge, including, but not limited to, child support obligations, some types of tax debts, and debts related to DUI injuries.
Accordingly, a debtor must carefully consider all of their debts when deciding whether to file for bankruptcy. You don’t want to find out that the main debt that drove you into bankruptcy is not dischargeable after your case is over!
Adding to the confusion, the bankruptcy court can discharge some types of debts in a Chapter 13 that are not eligible for a discharge in a Chapter 7.
Condo Association Dues & Chapter 13
The general rule that I have always been taught is that condo association dues are not dischargeable in a bankruptcy if they accrue after the bankruptcy was filed. This is consistent with other areas of discharge law. The general rule is that only debts that existed before the date the bankruptcy is file are eligible for discharge.
This rule creates some problems in one specific scenario. A Chapter 13 bankruptcy lasts three to five years from start to finish. In some Chapter 13 cases, the debtor asks the court to surrender a condo back to the lender. While the case proceeds, the condo is still in the debtor’s name. And condominium association dues continue to accrue until the condo is foreclosed upon by the lender or the HOA itself.
That leaves the bankruptcy filer in a difficult position. The debtor is in bankruptcy to reorganize and potential discharge some of their debts. But during that reorganization process, additional HOA dues continue to accrue. This is where the new law helps!
Post-Petition Condo Dues are Now Dischargeable!
The relevant case is titled In re Goudelock. The citation is 895 F.3d 633 and the decision was issued July 10, 2018. The Ninth Circuit held that condominium association assessments that become due after a debtor has filed for bankruptcy under Chapter 13 are dischargeable under 11 U.S.C. § 1328(a). If you are interested in the legal reasoning, it comes down to the fact that the court ruled that the HOA assessment really arose prior to the bankruptcy petition. Moreover, the court concluded that condo HOA dues are not among exceptions listed in § 1328(a).
This is great news for debtors that are attempting to surrender their condo in a Chapter 13 bankruptcy plan. The new decision will prevent the HOA from attempting to assert post-petition HOA dues against the bankruptcy filer after their bankruptcy case is discharged by the court.
My law practice represents both debtors and creditors in bankruptcy matters in Sacramento. Please contact us at (916) 333-2222 if you have questions related to bankruptcy.