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Is a Debtor Personally Liable for Assessments Accruing After a Chapter 13 Bankruptcy? Recent Bankruptcy Rulings Give Conflicting Answers

For all parties involved, bankruptcy can be a convoluted and confusing process. When a debtor files for bankruptcy protection an “automatic stay” is imposed, which is an injunction that halts actions by creditors to collect debts from the debtor. Once the petition is filed, the stay begins, regardless of whether the creditor has actual notice of the filing.   When the debtor successfully completes the bankruptcy they receive a discharge of debts incurred prior to the bankruptcy filing.  However, the automatic stay and discharge ordinarily do not apply to debts incurred after the date of filing bankruptcy.  Moreover, generally, the debtor is personally liable for debts incurred after filing bankruptcy, including community association assessments.

Due to their unique nature, when debts are owed to community associations questions arise as to how to treat pre-petition assessments (assessments incurred prior to the bankruptcy filing) and post-petition assessments (assessments incurred after the bankruptcy filing), and in what manner community associations can collect those differing debts.  Community associations have long sought for guidance on whether post-petition assessments are collectable against a debtor.

In a Chapter 7 bankruptcy, a debtor is personally liable for all post-petition assessments until the debtor no longer holds title to the property (i.e., foreclosure sale, short sale, deed in lieu of foreclosure, etc.).  However, due to nuances in the bankruptcy code, many debtor attorneys argue, and some judges agree, that a debtor who surrenders their property in a Chapter 13 bankruptcy is discharged of personal liability for post-petition assessments regardless of whether the debtor holds legal title to the property during or after the bankruptcy.  Why the different treatment? Unfortunately, the answer may depend on which district court the case was filed in.

U.S. Bankruptcy Court for the Southern District of Florida

The U.S. Bankruptcy Court for the Southern District of Florida recently held in In re: Ramirez, Case No. 08-29681-JKO (Bankr. S.D. Fla. Mar. 2016) that an owner’s personal liability for condominium post-petition assessments was extinguished by a Chapter 13 bankruptcy discharge.

In 2008, Jose and Ivanna Ramirez filed a Chapter 13 petition and named a condominium association as a secured creditor in their schedules and Chapter 13 plan.  The Chapter 13 plan also stated their intention to surrender the units.  In 2014, the debtors received a discharge that extinguished all debts specified in their Chapter 13 plan.

After the discharge was granted, the condominium association filed suit and obtained a monetary judgment against the debtors for post-petition assessments. In response, the debtors sought sanctions in the bankruptcy court against the association for violating the discharge order. The debtors requested $4,875.00 in legal fees, $75,000.00 in damages, and $50,000.00 in punitive damages.

In reaching its decision, the Court analyzed the treatment of community association assessments in  Chapter 13 and Chapter 5 of the Bankruptcy Code. Chapter 5 of the bankruptcy code provides that a discharge does not apply to community association assessments that come due after the bankruptcy filing as long as the debtor owns the property. However, Chapter 13 provides that when a debtor completes a Chapter 13 plan the debtor is discharged of all debts included in the plan, except for certain debts made non-dischargeable by specific code sections. Chapter 5’s assessment non-discharge provision is not a listed exception to the Chapter 13 discharge.

Therefore, in reading the provisions together, the Court held that the debtors’ personal obligation for post-petition assessments was extinguished by the Chapter 13 discharge. However, it held that the lien for assessments survived the discharge because it was based on a covenant that runs with the land. Thus, the debtors were protected from personal liability for assessments, but the condominium could foreclose its lien. As a result, the Court set aside the money judgment, but did not award any fees or damages to the debtors finding no malicious intent by the condominium association.

U.S. Bankruptcy Court for the Middle District of Florida

The U.S. Bankruptcy Court for the Middle District of Florida reached the opposite conclusion in the recent case of In re: Federico Augusto Montalvo, 536 B.R. 880 (Bankr. M.D. Fla. Feb. 2016). In this case the owner of two condominium units filed a Chapter 13 bankruptcy listing a condominium association as a secured creditor in his schedules and Chapter 13 plan.  The Chapter 13 plan further stated his intention to surrender his interest to the units.  The debtor successfully completed his Chapter 13 plan and received a discharge of debts. Despite surrendering the condominium units, title to those units remained in the debtor’s name as the mortgage lenders were slow to complete their foreclosures.

After the bankruptcy concluded, the condominium association, through a receiver, collected rents on the surrendered units and applied the rents to the oldest assessments, which were incurred prior to the bankruptcy filing. Additionally, they attempted to collect post-petition assessments from the owner. In response, the owner motioned the bankruptcy court for sanctions arguing the association violated the discharge injunction and the automatic stay by applying the collected rents to discharged, pre-petition assessments, and for attempting to collect post-petition assessments personally against him.

The Court ruled in favor of the condominium association and denied the owner’s motion for sanctions holding the association was entitled to apply the rents to the outstanding pre-petition assessments, as long as they did not collect the pre-petition assessments from the owner himself.  Since, the declaration and statute support the existence of a lien for unpaid pre-petition assessments and the association did nothing to collect the monies personally from the debtor, it did not violate the automatic stay or discharge injunction by applying collected rent monies to the prepetition assessments due. The judge concluded:

[t]he obligation to pay homeowners’ association assessments is based on a covenant running with the land, a property right … [the debtor] is responsible for all accruing post-petition assessments unless title to the real property transfers … the Association did not violate the automatic stay or the discharge injunction by applying rent monies to its pre-petition lien.

The Debtor is responsible for post-petition assessments on the property until a transfer of title occurs. Debtor admittedly is relieved of any in personam liability that arose pre-petition once a discharge issues. But, assessments will continue to accrue after the bankruptcy is filed, and the discharge will not relieve the Debtor of these post-petition in personam liabilities. Debtor remains personally liable for the post-petition assessments because the obligation runs with the land from the time of his discharge until title to the real property transfers.

The Court went on to explain that the debtor’s Second Amended Chapter 13 Plan provided: “[t]he debtor is responsible for paying all post-petition ongoing homeowners assessments, homeowners’ dues, and/or property taxes; the automatic stay shall not apply to these debts.” The debtor failed to comply with this order. Additionally, the Court noted that the debtor’s surrender of the units did not require the debtor to turn over physical possession of the units and is not equivalent to foreclosure. As the mortgage lender has no right to possession until transfer at a foreclosure sale, the property owner continues to legally own the property after default until a foreclosure or other transfer of title occurs. Therefore, the unit owner remains liable for the assessments until he is no longer the record owner. Consequently, the Court concluded the debtor is personally liable for the post-petition assessments.


The conflicting decisions are likely to be settled in the Eleventh Circuit. Until then, the unsettled questions as to whether personal liability for community association post-petition assessments can be discharged is a question that will continue to confuse community associations and will depend largely on which bankruptcy district the case is filed in.

Important practitioner’s note: Although post-petition assessments may not be subject to the automatic stay, unless the subject property has been abandoned by the trustee or otherwise been excluded from the bankruptcy estate, a community association must obtain relief from the bankruptcy court to pursue collections against the property because it is still considered property of the bankruptcy estate.  Managers and community associations are strongly advised to seek legal advice prior to taking any collection action against an owner or property if a bankruptcy has been filed.

Posted in Arias Bosinger, Community Association, Legislation
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