Can I Keep My Home in Bankruptcy if I Am Behind on HOA Dues?
Whether you'll lose your home in bankruptcy if you are behind in HOA assessments often depends on whether you file for Chapter 7 or Chapter 13 bankruptcy.
In most cases, if you are behind on your homeowners’ association (HOA) dues, the HOA can place a lien and foreclose on your property. Whether filing for bankruptcy can help you keep your home will typically depend on whether you file for Chapter 7 or Chapter 13 bankruptcy.
What Is an HOA Lien?
In general, if you live in a neighborhood or development that is managed by an HOA, you have to follow certain community rules called covenants, conditions, and restrictions (CC&Rs). CC&Rs typically give HOAs the power to collect monthly dues or assessments to maintain the community and its amenities. If you don’t pay your dues, the HOA can usually place a lien on your property (or a lien will automatically attach to your home).
Can the HOA Foreclose on Your Property?
If the HOA has a lien on your property, it can typically foreclose on your house to enforce that lien (although some states place limits on when an HOA can initiate foreclosure proceedings depending on how much you are behind in dues). (Learn more about foreclosure of HOA liens.)
Whether the HOA will exercise its right to foreclose will usually depend on the priority status of its lien (usually liens recorded first have priority over liens recorded later) and the amount of equity you have in your home. Because senior liens must be satisfied first in a foreclosure sale, an HOA with an assessment lien that is junior to your mortgage may not wish to foreclose if your home is underwater (meaning that the amount of liens on the property exceeds its value).
But keep in mind that the HOA may still decide to foreclose to get you out and take over the property (even if it’s subject to senior mortgage liens) or to try to force you into paying your delinquency. In addition, even if the HOA chooses not to foreclose on your home right away, it doesn’t mean that it won’t do so in the future. (Learn more about when the HOA might forclosure even if your home is underwater.)
HOA super liens. Some states have laws that give HOA liens priority over other types of liens (these are commonly referred to as HOA super liens). This means that if you live in a state that makes your HOA lien a super lien, your HOA will have more incentive to foreclose. (Learn more about HOA super liens.)
Can Bankruptcy Help You Keep Your Home if You Are Behind on HOA Dues?
If you fall behind on your monthly dues, your HOA usually has the right to sue you personally or place a lien on your property to recover your missed payments. Filing for bankruptcy can discharge (eliminate) your personal liability for your unpaid pre-bankruptcy HOA dues.
But in most cases, it won’t get rid of the HOA’s lien on your property. This means that you will typically need to catch up on your missed HOA payments if you want to keep your home. In general, HOA liens are treated as secured debts and what will happen to them in bankruptcy depends on whether you file a Chapter 7 or Chapter 13 case.
HOA Liens in Chapter 13 Bankruptcy
If you are behind on your HOA dues and want to keep your home, Chapter 13 bankruptcy can allow you to catch up on your missed payments through a bankruptcy repayment plan. In some cases, it may even allow you to strip (eliminate) the HOA’s lien. (Learn about how Chapter 13 plans work.)
You Can Catch Up on Missed HOA Payments Through Your Repayment Plan
If you have fallen behind on your HOA payments, you can pay off your pre-bankruptcy arrears through your Chapter 13 plan over a three to five-year period. As long as you make timely plan payments each month, the bankruptcy’s automatic stay will prohibit your HOA from foreclosing on your home.
But keep in mind that you must also continue to pay your post-bankruptcy HOA fees as they come due. If you don’t make your ongoing HOA payments, the HOA can ask the court to lift the automatic stay and allow it to initiate foreclosure proceedings.
You May Be Able to Strip Your HOA Lien in a Chapter 13
Chapter 13 bankruptcy also allows debtors to eliminate wholly unsecured junior liens (where the balance of the senior liens on the property exceeds its value) through a process called lien stripping. (Learn more about lien stripping in Chapter 13 bankruptcy.)
However, the law is not settled as to whether you can strip an HOA lien in Chapter 13 bankruptcy. While some courts have allowed debtors to strip their wholly unsecured HOA liens in Chapter 13 bankruptcy, whether you will be able to do so generally depends on:
- the priority status of the HOA’s lien
- how the lien is treated under state law, and
- the rules in your jurisdiction.
Lien stripping is typically only allowed in Chapter 13 bankruptcy. But the Eleventh Circuit Court of Appeals (which covers Alabama, Florida, and Georgia) has recently permitted debtors to take advantage of lien stripping in Chapter 7 bankruptcy. However, many attorneys report that despite the Eleventh Circuit decision (which has been appealed to the United States Supreme Court), most bankruptcy courts still don't allow lien stripping in Chapter 7. (To find the latest news on this issue. see Can I Get Rid of Second Mortgages and Junior Liens in Chapter 7).
But keep in mind that even if your jurisdiction allows unsecured HOA liens to be stripped in bankruptcy, you will only be able to eliminate the amount of the lien that exists on the date you file for bankruptcy. You can’t get rid of any HOA liens for fees that come due after you file your case.
Talk to a bankruptcy attorney. Because whether or not you can strip your junior HOA lien in bankruptcy depends on numerous factors, talk to a knowledgeable bankruptcy attorney in your area to learn whether you may be able to do so in your jurisdiction.
Chapter 7 Bankruptcy
In most cases, filing for Chapter 7 bankruptcy will not eliminate the HOA’s lien from your property. Your discharge typically only wipes out your personal liability for any outstanding pre-bankruptcy HOA dues. This means that the HOA can still foreclose on your home even after you receive a Chapter 7 discharge.
In addition, your discharge doesn’t eliminate your personal liability for HOA fees that come due after filing your bankruptcy. This means that you remain on the hook for your post-bankruptcy HOA dues. For these reasons, filing for Chapter 7 bankruptcy will typically not help you keep your home if you are behind on your HOA dues. (Learn more about HOA dues in Chapter 7 bankruptcy.)