Homeowners Association Dues

If one of your creditors got a judgment against you in a State Court action, you can still discharge that debt in bankruptcy – if it is of the dischargeable variety.

When a debtor files for bankruptcy protection, the long term goal is, of course, freedom from debt.  Unfortunately, not all debts are dischargeable in

It is not news to say that today’s real estate market is terrible.  Many “homeowners” are quite literally hundreds of thousands of dollars underwater.  I put homeowners in quotation marks because someone who is underwater does not really own a single molecule of the house.

This leads many to surrender their houses as part of the bankruptcy process.  Surrender of the house can be very sensible if the debtor can’t make the payments, and has negative equity.  When the Bankruptcy Court grants the debtor a discharge, the personal liability on the mortgage is discharged.  Moreover, since the debt is discharged in the bankruptcy, there is no cancellation of debt income, so there is no adverse tax consequence to the surrender.  In addition, any prepetition homeowners association (HOA) dues are discharged because they were incurred prior to filing the bankruptcy papers.

However, postpetition HOA dues are not discharged in the bankruptcy because they are incurred after the filing of the bankruptcy papers.  See 11 U.S.C. § 523(a)(16).  In the current real estate market this unfortunate fact can create a real problem because if the debtor surrenders the property the lender is not required to take possession of it, or record a transfer of title.  In the vernacular:  you take force someone to accept a gift.
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