Association Fees in Bankruptcy
Typically, if a homeowner files for bankruptcy protection and surrenders their house, any payments connected to the property are discharged. For example, an individual who owns a house can surrender their house and discharge any real estate taxes and mortgages that are associated with the house.
However, the bankruptcy code includes a specific exception for association fees that are incurred after the bankruptcy filing, through the date of the sale of the house. Any debtor that surrenders their house does not discharge the association fees that come due after the bankruptcy filing. This law does not include pre-filing association fee arrears, only payments that are due after the bankruptcy filing. In other words, any fees that are due prior to the filing, are eliminated. However, after the bankruptcy filing, the association may attempt to collect and sue the debtor for after-filing association fees that come due after the bankruptcy filing.
The debt that is due after the filing, ceases to continue to be due, after the debtor’s name is no longer on the deed and the debtor no longer resides in the property. This means that when the deed is transferred to another person, after a sheriff’s sale or short sale, the debtor is no longer responsible for any of the association dues that came due after the filing.
Years ago, this issue was rarely relevant because the entire New Jersey foreclosure action process was less than one year. However, the present condition of the economy and the astounding amount of New Jersey foreclosure actions, has substantially lengthened the foreclosure process, which results in the association’s collection of the fees, between the time of the bankruptcy filing through the transfer of the deed.
Please call the bankruptcy lawyer in NJ., Robert Manchel, at (866) 503-5655 to discuss how association fees are handled in bankrutptcy.