A Chapter 13 Bankruptcy Discharges Post-Filing HOA Fees

Case: Goudelock v. Sixty-01 Association of Apartment Owners, 16-35384 (9th Cir. July 10, 2018)

The Ninth Circuit court recently made a great decision in favor of homeowners surrendering their property after filing bankruptcy, and the issue of do you keep paying HOA fees? The Court held in a Chapter 13 proceeding that assessments coming due after filing a case will be discharged upon completion of the case. Here, the Court based its decision on the omission of Section 523(a)(16) from Section 1328(a). Note, this decision is only applicable to chapter 132 cases.

The facts of this case are common. The debtor left her condo and “surrendered’ the property with standard language in her chapter 13 plan. The condo remained unoccupied for more than four years before the lender foreclosed. The homeowners association then filed suit to collect on the post-petition fees via a complaint to determine the dischargeability of the post-filing assessments.

There has been two legal holdings on post-filing HOA fees. The first theory dealt with the idea that obligations arose upon the purchasing of the residence, and were therefore dischargeable in bankruptcy. Even if the debt was unmatured and contingent on filing. The second theory held the post-filing HOA fees were non-dischargeable because they ran with the land and were a month-to-month obligation (such as an electric bill – you can file bankruptcy on a past due amount, but you do not get free electricity going forward).

In 1994, Congress clarified the bankruptcy code’s intension with Section 523(a)(16), which provides post-filing HOA fees are non-dischargeable. However, Section 523(a) is only applicable to discharges in a chapter 7 cases and in the rare instance of a chapter 13 “hardship” discharge (See code section 1328(b)).

In a completed chapter 13 plan, the debtor receives a discharge under section 1328(a). A discharge under this section is called a “superdischarge”, which uniquely, provides a broader discharge and the non-dischargeablity exceptions of Section 523(a) do not apply. Therefore, Congress’s attempt to protect post-filing HOA fees does not apply to chapter 13 cases where debtor has completed their plan payments. The Court also found additional support in this decision under the fundamental concept that the bankruptcy code is designed to provide a “fresh start” and the bankruptcy code provisions are to be construed liberally in favor of debtors.

The Court went on to find that post-petition HOA fees are a prepetition claims that are unmatured and contingent on filing. The Court recognized these claims met the Ninth Circuit’s “fair contemplation” test to determine them a prepetition obligation.  This claim was established upon the purchase of the unit and was specifically not as the “result of a separate, post-petition transaction.” This is a great opinion for Arizona familes looking for a fresh start after surrendering a property and filing bankruptcy.

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