Post Petition Assessments Are Now Uncollectible Following Certain Chapter 13 Bankruptciesadmin
In Goudelock v. Sixty-01 Association, a debtor filed for Chapter 13 bankruptcy, completed her plan and received a discharge. The Association attempted to collect post-petition assessments, which attempt was upheld by the District Court. However, the 9th Circuit Court of Appeal reversed, finding that Chapter 13 post-petition assessments are a personal debt which arise (under the CC&Rs) when the property is purchased, rather than accruing on a monthly basis thereafter. Therefore, Goudelock’s successful completion of her 5 year payment plan and receipt of discharge cut off her responsibility to pay further monthly assessments.
It is now against the law to attempt to collect assessments from a debtor who has successfully obtained a Chapter 13 discharge. Although courts will continue to treat post-petition assessments in all other bankruptcy chapters as personal debt that survives a bankruptcy discharge, associations can no longer file civil actions after a Chapter 13 bankruptcy discharge to recover outstanding post-petition assessments as a personal debt unless the debtor fails to complete their plan. (Determining whether the debtor actually completes the plan and receives the discharge will take time and a bit of tracking.) Finally, if discharge is granted, the association must look solely to foreclosure of the property for recovery.
In order to protect themselves, associations should consider the following: (a) make a big bright note in the property file of any debtor who files for a Chapter 13 bankruptcy, to determine if debtor receives a discharge – it’s not a matter of simply bifurcating the account anymore, it is possible that debtor no longer will owe personal assessments; (b) file liens as soon as owners become delinquent – assessments still accrue against the property; (c) understand that if a bankruptcy has been filed by a debtor, the association will need to file a motion for relief from the automatic bankruptcy stay before filing a lien – which may not be granted; and (d) while a timely lien may net payment at the future sale of the property, those associations opposed to a unit owner living in the community and enjoying its amenities without having to pay a dime will surely want to pursue a foreclosure action.
COMMUNITY LEGAL ADVISORS INC.
Mark Allen Wilson, Esq..