Many New Yorkers live in condos or homeowner communities as opposed to independent, single-unit owner-occupied or rental housing. Keeping a home in New York bankruptcy is a common topic, as is protecting the interests of renters—including those in rent-stabilized units—but not so much is said about condos or homeowner communities. In New York City such homeowners are usually better off than renters in that they have the same non-bankruptcy alternatives that homeowners do, but they also (sometimes) have some equity in their homes.
One notable difference between condo dwellers and community homeowners versus independent owners and renters, though, is the fact that the former category must pay membership fees to the condominium or homeowners association. These fees are used to pay staff and maintain or improve the association’s assets. Before the downturn, in hard-hit southern states like Florida, many people bought into condos that were never fully occupied, or other dwellers moved out, leaving the remaining members shouldering a larger maintenance burden. In many other cases, the members simply cannot afford their bills and as the likelihood of foreclosure rises, the association fees accumulate.
Consequently, many condo community homeowner debtors have significant unpaid association or homeowners fees that accumulate as they consider bankruptcy. So what happens to these debts?
It might appear to be a simple example of an unsecured debt, like credit-card debt, but the Bankruptcy Code specifically addresses these fees in section 523(a)(16). The discharge order does not apply to any debts for:
[A] fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot.
In plain English, condo or homeowners fees that the debtor owes after filing bankruptcy will not be discharged for the time that the debtor owns the unit. However, the statute emphasizes that pre-bankruptcy fees are dischargeable.
Superficially, this means debtors should be careful to ensure that they will be able to pay their condo or homeowners association fees after filing bankruptcy, particularly if they intend to live in the unit after the case. Sometimes this is easier said than done. If a debtor’s case has any characteristics that extend the time of the case or prevent the property from being resold, then the debtor might end up with a large nondischargeable post-bankruptcy debt than might be warranted. Co-op dwellers, however, are usually okay because their fees come ahead of their mortgages.
Most of the time, these kinds of housing fees do not pose a problem in bankruptcy, but if your case has any factors (including an unsympathetic home association) that might make the post-petition fees a problem, then it’s a good idea to strategize with an experienced New York bankruptcy lawyer before filing.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.