Most well-informed Florida condominium and homeowners’ association boards know that the filing of a petition in bankruptcy court by a unit owner halts direct collection efforts. What most boards do not understand, however, is that the mere filing of a Chapter 7 or Chapter 11 petition does not discharge that debtor’s post-bankruptcy filing obligations to the association – even when the debtor “surrenders” the property in the bankruptcy or otherwise moves out of the subject unit.
Prior to the 2005 amendments to the Bankruptcy Code, post-bankruptcy filing monthly maintenance amounts and assessments were non-dischargeable so long as the debtor either physically occupied or rented the unit. The relevant Bankruptcy Code section has since been amended to add language that mere ownership creates the non-dischargeability of these post-petition obligations. Accordingly, as is often the case in this recession, even if the debtor files a Statement of Intention signaling their surrender of the relevant unit and a foreclosing bank files a motion to lift the “automatic stay” in bankruptcy court to proceed with its own collection process in state court, for as long as the debtor holds title (i.e., unless and until a final sale –foreclosure or otherwise– takes place), the subject obligations are not dischargeable in the bankruptcy.
Associations need to be mindful, however, that while post-petition amounts cannot be “discharged” as set forth above, the “automatic stay” will be in effect for the duration of the bankruptcy – precluding collection efforts directly against owners without court permission. Because the facts, circumstances and economics of each case will differ, associations should consult with their bankruptcy attorneys regarding a recommended course of action.
Author(s): Aleida Martínez Molina
