Condominiums, Homeowners’ Associations and Bankruptcy: How Does a Unit Owner Bankruptcy Affect Collections?

Collection of assessments is one of the biggest headaches for many Community Associations.  Most of the time, collections follow a standard process.  It might be slow and take several steps.  But, since assessments are liens on the unit and since an Association can collect all of its attorneys’ fees and costs, an Association can collect all of its assessments most of the time.

However, when a Unit Owner files for Bankruptcy, the collection process changes.

Collecting Unpaid Assessments during a Bankruptcy

I have worked with a number of Associations who thought that once a Unit Owner filed for Bankruptcy, they had to write off all of their uncollected assessments.

I also have seen plenty of others do nothing while the Bankruptcy process lumbers on.  This just makes the already large delinquency even bigger.

Associations can collect unpaid assessments when a Unit Owner is in Bankruptcy. 

That needs to be put in big, bold letters.  There are different rules to follow and different definitions to learn.  But if the Association (and their property manager and attorney) pays attention and acts when they need to, they can collect all of their assessments (and costs and attorneys’ fees, too).

Lots of times, an Association actually benefits when a Unit Owner declares Bankruptcy.  It can be easier to collect past due assessments in Bankruptcy than when using the more standard process.

The Start of a New Blog Series

Bankruptcy is too big of a topic to handle in one blog post.  So, this will be the first in a multi-part series explaining how Bankruptcy affects Community Association Collections.

This series of articles is going to explain:

• What Bankruptcy is
• Some of the new terms and definitions that you need to learn when dealing with Bankruptcy
• The types of Bankruptcy
• How the Association gets paid
• Strategies to use when the Unit Owner stops paying
• What happens at the end of Bankruptcy

Reading through these articles will not make anyone an expert in Bankruptcy, of course.  What happens when a Unit Owner files for Bankruptcy is only a small sliver of the topic.  But hopefully, it will help take the mystery out of when a Unit Owner files for Bankruptcy.

Collecting assessments in Bankruptcy is just a different – but possible – path that we can take.