The Case
In Goudelock v. Sixty-01 Association, a debtor filed for Chapter 13 bankruptcy, completed her plan and received a discharge. The Association attempted to collect post-petition assessments, which attempt was upheld by the District Court. However, the 9th Circuit Court of Appeal reversed, finding that Chapter 13 post-petition assessments are a personal debt which arise (under the CC&Rs) when the property is purchased, rather than accruing on a monthly basis thereafter. Therefore, Goudelock’s successful completion of her 5 year payment plan and receipt of discharge cut off her responsibility to pay further monthly assessments.

The Results

It is now against the law to attempt to collect assessments from a debtor who has successfully obtained a Chapter 13 discharge. Although courts will continue to treat post-petition assessments in all other bankruptcy chapters as personal debt that survives a bankruptcy discharge, associations can no longer file civil actions after a Chapter 13 bankruptcy discharge to recover outstanding post-petition assessments as a personal debt unless the debtor fails to complete their plan. (Determining whether the debtor actually completes the plan and receives the discharge will take time and a bit of tracking.) Finally, if discharge is granted, the association must look solely to foreclosure of the property for recovery.

Going Forward 

In order to protect themselves, associations should consider the following: (a) make a big bright note in the property file of any debtor who files for a Chapter 13 bankruptcy, to determine if debtor receives a discharge – it’s not a matter of simply bifurcating the account anymore, it is possible that debtor no longer will owe personal assessments; (b) file liens as soon as owners become delinquent – assessments still accrue against the property; (c) understand that if a bankruptcy has been filed by a debtor, the association will need to file a motion for relief from the automatic bankruptcy stay before filing a lien – which may not be granted; and (d) while a timely lien may net payment at the future sale of the property, those associations opposed to a unit owner living in the community and enjoying its amenities without having to pay a dime will surely want to pursue a foreclosure action.

COMMUNITY LEGAL ADVISORS INC.
Mark Allen Wilson, Esq..