Can I Keep My Home in Bankruptcy if I Am Behind on HOA Dues?

Whether filing for bankruptcy can help you keep your home when you're behind on homeowners' association (HOA) dues depends almost entirely on which type of bankruptcy you file. Chapter 13 bankruptcy generally lets you catch up on missed dues through a repayment plan and stop a pending HOA foreclosure, while Chapter 7 bankruptcy typically won't stop the HOA from foreclosing on its lien. Here's what happens to an HOA lien in each type of case, and when you might be able to wipe it out entirely.

Can Bankruptcy Help You Keep Your Home If You're 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. In general, HOA liens are treated as secured debts, and what happens to them in bankruptcy depends on whether you file a Chapter 7 or Chapter 13 case. Here's a quick side-by-side look at how the two chapters compare.

HOA Liens in Chapter 13 Bankruptcy

Chapter 13 bankruptcy is generally your best shot at keeping your home when you're behind on HOA dues, because it lets you spread out the arrears over three to five years and, in limited cases, wipe out the lien entirely.

You Can Catch Up on Missed HOA Payments Through Your Repayment Plan

Your Chapter 13 plan lets you pay off pre-bankruptcy HOA arrears over three to five years while the automatic stay blocks foreclosure, as long as you stay current on your payments.

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. (11 U.S.C. § 362(a); 11 U.S.C. § 1322(b)(5).)

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 Might Be Able to Strip Your HOA Lien in Chapter 13

In some cases, you can eliminate a wholly unsecured HOA lien altogether through a process called lien stripping. Chapter 13 bankruptcy allows debtors to eliminate wholly unsecured junior liens (where the balance of the senior liens on the property exceeds its value) this way. However, the law isn't settled on whether you can specifically strip an HOA lien.

While some courts have allowed debtors to strip their wholly unsecured HOA liens in Chapter 13 bankruptcy, whether you'll 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.

But keep in mind that even if your jurisdiction allows unsecured HOA liens to be stripped in bankruptcy, you'll 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. (11 U.S.C. § 506(d).)

HOA Liens in Chapter 7 Bankruptcy

Chapter 7 bankruptcy typically won't help you keep your home if you're behind on HOA dues, because it erases your personal liability for the debt but leaves the HOA's lien in place, and lien stripping isn't allowed in Chapter 7. 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, for as long as you or the bankruptcy trustee still hold an ownership interest in the property, leaving you 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're behind on your HOA dues. (11 U.S.C. § 523(a)(16).)

What Happens to HOA Dues If You Surrender Your Home?

Surrendering your home doesn't automatically end your HOA dues. You're usually still on the hook for them until title changes hands.

Some homeowners decide to surrender (give up) a home they can no longer afford rather than try to catch up on missed HOA payments. Under the majority rule, you remain personally liable for dues that come due after you file for as long as you hold legal title to the property, even if you've moved out and stopped paying your mortgage. Your HOA dues typically stop accruing once the lender completes the foreclosure or title otherwise transfers out of your name. (11 U.S.C. § 523(a)(16).)

A minority of courts, including the Ninth Circuit Court of Appeals (covering Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington), have ruled that Chapter 13 debtors who formally surrender their home through their bankruptcy plan aren't liable for HOA dues that accrue after filing, even while they still hold legal title. Because courts disagree on this issue, ask a local bankruptcy attorney how surrendering your home will affect your HOA debt in your jurisdiction.

What Is an HOA Lien?

An HOA lien is a legal claim your homeowners' association can place on your property when you fall behind on dues or assessments. If you live in a neighborhood or development managed by an HOA, you must 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?

Yes. If your HOA has a valid lien, it can typically foreclose to collect what you owe, though state law and lien priority affect whether (and when) it will. 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's junior to your mortgage may not want to foreclose if your home is underwater (meaning 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. And even if the HOA chooses not to foreclose on your home right away, that doesn't mean it won't do so in the future.

HOA Super Liens

A super lien is an HOA lien that jumps ahead of other liens, including your mortgage, in roughly 20 states. If you live in a state that makes your HOA lien a super lien, your HOA has more incentive to foreclose, since it stands a better chance of getting paid ahead of your mortgage lender.

HOA Liens and Bankruptcy FAQs

• Can filing for bankruptcy stop an HOA foreclosure?
• Does an HOA lien survive Chapter 7 bankruptcy?
• Do I still owe HOA dues after bankruptcy?
• Can I strip an HOA lien in bankruptcy?

Can filing for bankruptcy stop an HOA foreclosure?

Yes, at least temporarily. The moment you file for either Chapter 7 or Chapter 13 bankruptcy, the automatic stay stops most collection actions, including a pending HOA foreclosure. But in a Chapter 7 case, the stay is usually short-lived because it doesn't address the underlying lien, and the HOA can ask the court to lift it. Chapter 13 offers longer-lasting protection because you can use your repayment plan to catch up on the arrears. (11 U.S.C. § 362(a).)

Does an HOA lien survive Chapter 7 bankruptcy?

Yes, in most cases. A Chapter 7 discharge wipes out your personal liability for the debt, but it doesn't remove a validly recorded HOA lien from your property. The HOA can still foreclose on the lien after your case ends unless you pay off the arrears or successfully strip the lien where your jurisdiction allows it.

Do I still owe HOA dues after bankruptcy?

You'll typically still owe any HOA dues or assessments that come due after you file, for as long as you (or the bankruptcy trustee) hold an ownership interest in the property. (11 U.S.C. § 523(a)(16).) Only your pre-bankruptcy arrears can be discharged or paid off through your case.

Can I strip an HOA lien in bankruptcy?

Possibly, but only in Chapter 13 bankruptcy, and only if the HOA's lien is wholly unsecured (meaning senior liens already exceed your home's value). Whether courts in your jurisdiction allow HOA lien stripping varies by jurisdiction, so talk to a local bankruptcy attorney before counting on this strategy.

Talk to a Bankruptcy Attorney

If you want to keep a home that's behind on HOA dues, Chapter 13 is almost always the stronger option, since Chapter 7 won't stop the HOA from foreclosing on its lien. Because lien-stripping rules and HOA-lien priority vary by state, talk to a knowledgeable bankruptcy attorney near you before deciding how to proceed. From there, you can:

• learn how a Chapter 13 case solves more problems than Chapter 7
• see if you qualify to erase debt in a Chapter 7 case
• learn what you should know about filing for bankruptcy
• find out about timing your bankruptcy and when you'll want to delay or avoid filing, and
• take a short, ten-question quiz to find out whether you should hire a bankruptcy lawyer.