Bankrupt Homeowners Can Stay and Not Pay Overdue Assessments How the Goudelock Decision will Affect HOAs and the Owners Who File for Bankruptcy BY KATRINA SOLOMATINA, ESQ.
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he Ninth Circuit Court of Appeals has recently issued an opinion that will impact condominium and home owners who file for bankruptcy. The decision has changed the bankruptcy law making it more difficult to collect assessments from a homeowner who has declared bankruptcy under Chapter 13. The Ninth Circuit Court of Appeals has held that HOA assessments that come due after a Chapter 13 case has been filed are discharged at the conclusion of the case. This decision means that there will be new burdens on management companies, attorneys and debt collectors to assure that associations do not attempt to collect future assessments when an owner has obtained a discharge in a Chapter 13 bankruptcy. Individuals who file for Chapter 13 bankruptcy typically earn a healthy wage which allows them to reorganize their debts and pay back a portion of their debt to creditors. A reorganization plan usually runs from three to five years. Whereas, Chapter 13 filings allow for reorganizations, a Chapter 7 bankruptcy, usually requires an immediate discharge of debt without paying creditors. In 1994, Congress reformed the bankruptcy code
to make it clear that owners who file a Chapter 7 bankruptcy must pay assessments that come due after the filing of the petition in bankruptcy. Congress failed, however, to clarify if that obligation extends to owners who file under Chapter 13. In the recent ruling of Goudelock v. Sixty-01 Ass’n of Apartment Owners, 895 F.3d 633 (9th Cir. 2018) (“Goudelock”) the Ninth Circuit court made it clear that if a condominium or home owner files for a Chapter 13 bankruptcy in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon or Washington, their debts will be discharged and creditors will be left holding the bag. This decision will certainly impact how and when an HOA enforces its lien and will certainly cause owners to reconsider (i) whether they should pay their post-petition debts to the HOA or (ii) whether they should reside rent free and assessment free while they go through foreclosure proceedings.
The Goudelock Decision Penny Goudelock purchased a condo unit in 2001 in Redmond, Washington. Her deed was subject Continued on page 26 ECHO journal | March/April 2020
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