What is the effect of bankruptcy on HOA financial obligations?
When a homeowner declares bankruptcy in California, the effect on their Homeowners Association (HOA) financial obligations is mixed. Generally speaking, debts owed to an HOA are not dischargeable, or cleared, in a Chapter 7 bankruptcy. The debtor will still owe the debts to the HOA, and the HOA can still seek payment in the same manner they did before the bankruptcy filing. However, in a Chapter 13 bankruptcy, the homeowner may be able to modify the payment of the debts due to the HOA, and the judge may reduce the amount due. The HOA cannot pursue a lien, foreclosure, or other collection methods against an individual debtor during a bankruptcy. However, the HOA can choose to file a proof of claim to ensure they are listed as a creditor of the debtor and will be treated as a creditor in the bankruptcy process. This can, at the very least, help the HOA establish the true amount the debtor owes, as it can be difficult to establish this during the bankruptcy process. It is important to note that the HOA is still able to assess late fees and collection penalties while the bankruptcy process is underway. This is because the bankruptcy does not change the terms of the HOA agreement, and a debtor is still liable for fulfilling their contractual obligations. In some cases, the HOA can also assess interest on past-due balances of the debtor. Ultimately, bankruptcy law depends on the facts of the case and the type of bankruptcy filed. It is important to consult with a lawyer to understand how bankruptcy law will affect the HOA financial obligations due from a debtor.
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