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Protection from Your Homeowners’ Association

September 30th, 2019 at 7:00 am

Bankruptcy gives you protection from your homeowners’ association. Chapter 7 may be enough, but Chapter 13 buys much more time.

 

Filing bankruptcy gives you limited, but potentially very useful protection from your homeowners’ association liens and debts. A Chapter 13 “adjustment of debts” filing could especially help.

Your Homeowners’ Association Is a Particularly Dangerous Creditor

Once you fall behind on homeowners’ dues and or assessments, your association gains tremendous power over you and your home.

Unpaid obligations to your homeowner’s association (HOA) immediately create a lien against your home for the amount of the debt. As soon as the debt increases—every month, usually—the lien increases. This is true whether or not you are in bankruptcy. Assuming you want to keep the home, you will have to pay the debt one way or the other.

Also, about 20 states’ laws give HOA liens “super-priority” status over other liens that are attached to the property. This would include priority over even your first mortgage, which could create huge problems for you. As just one example, if your HOA forecloses on its lien that would eliminate the first mortgage lien. At least potentially, none of the value of the home would go towards paying down the mortgage debt. You could owe the full balance of that mortgage debt in spite of no longer owing the property!

Also, you cannot discharge (legally write off) the debt for any HOA dues and assessments that come due after you file bankruptcy. This is true “for as long as [your or your bankruptcy trustee] has a legal, equitable, or possessory ownership interest” in the home. Subsection 523(a)(16) of the U.S. Bankruptcy Code. This means that if you surrender the home and walk away from it but neither the HOA nor your mortgage holder foreclose your interest in the property for a while, you continue to be on the hook for the monthly accruing due, plus any new assessments, and likely other HOA costs like foreclosure and attorney fees.

As we said, your HOAs can be a dangerous creditor. You need all the protection you can get.

What Chapter 7 Can Do For You

Assume you want to keep your home and are not terribly far behind on the HOA dues and/or assessments. Filing a Chapter 7 “straight bankruptcy” case may give you the limited help you need.

In most Chapter 7 cases all or most of your unsecured debts (those without any liens) get permanently discharged. This should significantly help your cash flow. Most of those debts you don’t have to pay as of the day you file your Chapter 7 case. Talk with your bankruptcy lawyer about whether you would have the cash flow to catch up on and maintain your HOA payments once you file bankruptcy. Your lawyer may want to contact the HOA to work out a payment plan in advance.

Remember, once you decide to keep the home you need to be confident that you can afford to do so. That’s because, as explained above, your Chapter 7 case will not discharge any HOA obligations that come due after filing. The last thing you want is new HOA debts accruing on a home you aren’t keeping after all. Decide to keep the home only if you know you can get current and keep current with the HOA.

The Much Greater Protection under Chapter 13

Filing a Chapter 13 “adjustment of debts” gives you much more protection against HOA debts and liens. It’s often the better tool if you’re substantially behind with the HOA and need lots more time to catch up. It may well be the only way to keep your home if you’re behind on both the mortgage(s) and HOA debts.

Chapter 13 involves you and your bankruptcy lawyer putting together a formal 3-to-5-year payment plan. That plan would show how you’d catch up with the HOA within that 3-to-5-year time span.

Same thing with any mortgage arrearage and other special debts. Most ordinary unsecured debts you’d only pay if and to the extent you had money to spare after these more important debts.

From the moment you file your Chapter 13 case and then throughout the payment time span, the HOA would usually not be able to take action against you or your home. It can’t foreclose its lien, or cause other mischief, as long as you’re paying the plan as agreed. Then at the end of your payment plan you’d be current with the HOA.

You’d also be current on or have paid off other important debts (like your mortgage, certain income taxes, and such). To the extent you haven’t fully paid other, ordinary and unsecured debts their remaining balances would get discharged. You should be debt free (except for long-term debt like your home mortgage). And you would have taken care of the dangerous HOA while protecting and keeping your home. Mission accomplished.

 

More Bankruptcy Benefits for Your Home

June 24th, 2019 at 7:00 am

Besides helping with your mortgage, bankruptcy protects your home against other liens—from judgments, income taxes, and homeowner associations.  


Last week we gave you 7 ways that bankruptcy can either save your home now or protect it going forward. Here are the remaining 8 ways (#8 through #15), mostly involving involuntary liens placed on your home by special creditors.

8. Judgment lien “avoidance”:  

You can get rid of a present judgment lien that’s on your home’s title if it “impairs” your homestead exemption. This means that it “eats into” the equity that is protected by the exemption. Judgment lien avoidance turns a secured debt that you’d have to pay to protect your home into an unsecured one. See Section 522(f)(A) of the U.S. Bankruptcy Code.  You could then usually write off (“discharge”) that unsecured debt in a Chapter 7 “straight bankruptcy” case. Or you could pay little or nothing on that debt in a Chapter 13 “adjustment of debts.”  

9. Prevent future judgment liens:  

Bankruptcy stops ongoing or future lawsuits against you. See the “automatic stay” of Section 362(a)(1) and(6) of the Bankruptcy Code. First, ongoing lawsuits are usually frozen in their tracks so they can never turn into judgments. Second, any creditors which have not sued you beforehand usually can’t ever do so (with some rare exceptions). So they can’t get a judgment, and can’t ever record a judgment lien on your home. Since not all judgment liens can necessarily get “avoided” under #8 above, it can be very important to file bankruptcy with your bankruptcy lawyer before a creditor gets a judgment.

10. Prevent upcoming income tax liens by discharging the tax debt: 

Similarly, in many situations bankruptcy prevents the IRS or your state from recording an income tax lien against your home. Section 362(a)(4 and 5). Under either Chapter 7 or 13 you can discharge older and otherwise qualifying tax debts. During the bankruptcy case the IRS/state can’t record a tax lien. And it can’t do so afterwards because the tax debt no longer exists. So, your bankruptcy filing prevented the tax from being secured against your home, which would’ve created serious disadvantages for you. As a result it’s highly preferable to file bankruptcy before a tax lien gets recorded.

11. Prevent upcoming income tax liens by paying off the tax debt:  

If the tax debt is newer or otherwise doesn’t qualify for discharge, pay the tax through Chapter 13 filed through your bankruptcy lawyer. Section 1322(a)(2). You pay the tax based on your realistic budget instead of the IRS/state’s imposed one. You can delay paying on the tax while you pay more important debts (such as to catch up on your mortgage). You don’t pay ongoing interest and penalties (since the debt is unsecured). Again, during the case the IRS/state can’t record a tax lien. And it can’t afterwards because by then you’ll have paid off the tax. You’d have prevented IRS/state from gaining the significant advantage against you of a recorded tax lien.

12. Prevent or address a child/spousal support lien against your home:  

Discharge your other debts with a Chapter 7 or 13 case so that you don’t fall behind on support payments. Or if you’re already behind, catch up on your support obligations with a Chapter 13 payment plan. As long as you pay as you’ve agreed, no new support lien can be imposed on your home. And your ex-spouse or support enforcement agency can’t foreclose on any pre-existing support lien. Your home is protected while you catch up.

13. Protect your home from your homeowners’ association:

If you’re get behind on homeowner association dues and/or assessments, your HOA gains tremendous power over you. You can regain the upper hand by filing a Chapter 13 case. You have to pay the back dues or assessment(s) if you want to keep your home. But you have as much as 5 years to catch up through a Chapter 13 payment plan. Throughout that time the HOA can’t foreclose or take other collection action, as long as you’re paying your plan.

14. Buy time to sell your home:

In many different situations, bankruptcy gives you more time to sell a home. You may need more time to get it ready for sale, or may want to move later for personal reasons. Chapter 7 usually delays a mortgage foreclosure, or similar actions against your home by other lienholders, for a few weeks or months through Chapter 7. You can likely get much more time to sell, sometimes as long as 5 years, through Chapter 13.

15. Resolve accounting disputes with your mortgage lender:

If you fall behind on your mortgage, it can be shockingly difficult to get on the same page with your lender about how much you owe. This is especially true if you have a history of being behind over an extended period. This accounting confusion has been a serious problem for millions of homeowners over the last decade or two. So, in 2011 a new procedure was created (mostly for Chapter 13) to efficiently resolve such disputes. See Rule 3002.1 of the Federal Rules of Bankruptcy Procedure. It’s a very handy tool when you’re trying to save your home and your lender is not cooperating.

 

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