Bankruptcy law creates a court order forgiving most debts. Discharge (forgiveness) of homeowners association dues related to California property is governed by a combination of bankruptcy law and California law. Generally, past due HOA dues are dischargeable in either chapter 7 or chapter 13 but only as to dues owed on the bankruptcy filing date. Dues that come due after bankruptcy are owed by the owner of the property, meaning it’s a good idea either sell the property or let it foreclose before filing bankruptcy to avoid being the owner after bankruptcy and owing post-bankruptcy dues. Sounds simple enough, right? I said generally, and unfortunately an HOA can file a lien which alters the result in many cases.
In order to address the impact of an HOA lien, I will first discuss liens in general. A lien is a document giving the lienholder rights to your property which can survive bankruptcy. Car loans are a common example of a lien. The auto lender is entitled to repossess the car if the contractual payments are not made but is required to comply with the procedural requirements of California law. Car loans survive bankruptcy unless the car is returned to the lender. Conversely, a person can file bankruptcy and retain a car by continuing to make payments after bankruptcy. An HOA can record a lien without the owner’s consent if HOA dues become delinquent. Enforcement of an HOA lien is governed by California’s foreclosure laws. Yes, your HOA has the power to foreclose!
Now back to bankruptcy. In chapter 7 (full bankruptcy) an HOA lien filed before bankruptcy will remain after bankruptcy, meaning the HOA dues will need to be paid at some point. In some chapter 13 (reorganization) cases, an HOA lien can be given special priority and paid in full while other debts are paid pennies on the dollar. In other chapter 13 cases, the HOA lien can be removed from the title without payment in full. If you owe delinquent homeowners dues, bankruptcy provides powerful rights to help you deal with the problem.
At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free in-office consultation. We have offices in Walnut Creek, Antioch, and Hercules.
References: Cal. Civ. Code 5650, 5675, 5680 & Bankruptcy Code 523(a)(16), 1328(a).