The United States Supreme Court, during its recently-ended 2018 Term, declined to review the decision of a federal appeals court that a condominium owner is not personally responsible for payment of assessments which become due after the owner files a Chapter 13 bankruptcy petition when the owner makes all payments under a bankruptcy payment plan approved by the Bankruptcy Court.
The Bankruptcy Court in Washington State ruled that the obligation to pay assessments arises when each monthly assessment is due, allowing a condominium to collect the assessments for the 4-year period between the time when the bankruptcy was filed and the lender foreclosed on the condominium unit.
Appeals Court Voids Payment Obligation
However, the federal appeals for the Ninth Circuit, in Goudelock v. Sixty-01 Association of Apartment Owners, decided differently that the obligation to pay all future assessments was established when the owner purchased the condominium unit which was subject to the assessment covenant in the condominium declaration creating the condominium. The appeals court concluded that assessments which became due after the Chapter 13 bankruptcy was filed should be regarded as “unmatured contingent debts” which arose prior to filing the bankruptcy petition. Therefore, the owner had no obligation to pay such assessments even though the assessments were not due until after the bankruptcy petition was filed.
The appellate court noted that the federal Bankruptcy Code requires a condo unit owner to pay post-bankruptcy assessments in a Chapter 7 bankruptcy, but that obligation does not apply in a Chapter 13 bankruptcy when all bankruptcy plan payments are made. The court also noted that the assessment lien is not affected by the Chapter 13 bankruptcy and the lien may be enforced by a foreclosure sale. The court rejected the condominium association’s contention that it is inequitable and unfair for an owner to own a condominium unit without paying assessments and suggested that it up to Congress to change the bankruptcy laws.
In its July 2018 decision, the appeals court noted that it is the first federal appeals court to address whether a condominium association can collect assessments which become due after filing a Chapter 13 bankruptcy. Because other bankruptcy courts and federal trial courts have ruled that a condominium owner is always obligated to pay post-petition assessments, the request that the United States Supreme Court review the appeals court ruling was supported in an amicus brief by the Community Associations Institute.
Maryland Bankruptcy Court Guidance
Although the decision of the Ninth Circuit federal court applies only in certain Western states (and Alaska and Hawaii), the Maryland Bankruptcy Court similarly ruled in January 2018 that assessments which become due after a Chapter 13 bankruptcy is filed are uncollectible if the owner makes all bankruptcy plan payments. However, the Maryland court guidance allows for relief from the bankruptcy stay so a condominium or homeowners association can obtain a state court judgment for the assessments which become due after the filing of a Chapter 13 bankruptcy, but the court judgment cannot be enforced by seizing bank accounts or wages until it is known whether all bankruptcy plan payments are made and the debt becomes uncollectible.
Posted by Thomas Schild Law Group, LLC, attorneys for condominiums, homeowner associations and housing cooperatives in Maryland -– including Montgomery County, Prince George’s County, Howard County, and Baltimore County; and in Baltimore City and Washington, D.C.