Bankruptcy won’t protect you from future charges

Question: If owners cannot afford the monthly homeowner association dues that rise on a yearly basis, can each owner file for individual bankruptcy?

Answer: Any titleholder can file for bankruptcy, but the qualifications have become more stringent than they used to be because of the Bankruptcy Abuse Prevention and Consumer Protection Act, which took effect Oct. 17, 2005, and is considered to be a major reform of the bankruptcy program.

Presuming the association has not yet filed a lien on the owner’s property, the bankruptcy may discharge homeowner association assessments and/or dues that a titleholder owed before filing for bankruptcy protection. But association assessments that come due after the bankruptcy filing are not discharged and will have to be paid.

The law states that the failure to pay association assessments and/or dues may result in the loss of an owner’s property through foreclosure. Foreclosure may occur either as a result of a court action, known as judicial foreclosure, or without court action, often referred to as nonjudicial foreclosure.

Since Jan. 1, 2006, it has been the law that an association may not use judicial or nonjudicial foreclosure to enforce a recorded lien if the amount of the delinquent assessments and/or dues, exclusive of any accelerated assessments, late charges, fees, attorney’s fees, interest and costs of collection, is less than $1,800. For delinquent assessments or dues of $1,800 and up, or more than 12 months delinquent, an association may use judicial or nonjudicial foreclosure.

A number of associations are aggressively pursuing the money they believe is owed to them. Some even are attempting to circumvent the various protections written into the Davis-Stirling Act by filing Small Claims Court actions for outstanding assessments in amounts ranging anywhere from $1 up to the jurisdictional limit of $7,500 and obtaining judgments for such amounts.

If the association obtains a judgment in any court and it is not satisfied by payment, then interest will accrue and everything from garnishment to liens can take place until the judgment is paid or until a bankruptcy is filed.

Judgment debtor exams (ordered by the court to uncover assets and net worth) also are allowed but stop after the bankruptcy petition is filed and end permanently after a “discharge” is granted because the titleholder is presumably no longer personally liable for the obligation.

The bankruptcy process is complicated, limited in scope and typically used as a last resort. Consumers cannot file a bankruptcy petition more than once every six years, they cannot receive a discharge more than once every seven years, and the bankruptcy information stays on the consumer’s credit record from seven to 10 years.

But after two years, the effect of a bankruptcy is minimized in determining one’s credit score, depending on one’s credit history following the discharge and its fiscal impact on giving the consumer a “fresh start.” For more information, visit the Department of Justice website at www.justice.gov/ust/eo/bapcpa.

Care must be taken when deciding whether or not to file for bankruptcy because it could result in a loss of equity in one’s personal and real property. Before filing for bankruptcy, try meeting with the board and requesting that a payment plan be implemented.

A fact of owning deed-restricted property in common-interest development projects is that, as the costs of living rise, so too do the operating fees. This often increases the monthly assessment and dues payments for everyone.

If “all” the owners cannot afford to pay monthly assessments, then the board must take immediate action to streamline its operation and drastically cut costs. If only you cannot afford to pay monthly assessments, then you may have to sell and move.

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Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or e-mail noexit@mindspring.com.