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Bankruptcy and your condominium association or homeowner association

Posted on Mar 19, 2009 in Real Estate

These days, clients are finding they must give up their homes.  Frequently, they live in a condominium or in a home where there is a homeowners’ association.  These cases pose a hidden trap in bankruptcy.

Generally, bankruptcy leads to a discharge of all debts.  However, there is a cut-off  date.  Bankruptcy only discharges debts which are incurred up to the date of the petition.  If  you decide to leave your condominium or home after you file the bankruptcy, you will be relieved of any debt to your mortgage lender.  That will be discharged.  But you won’t be relieved of any future debt to the condominium association or the homeowners’ association. 

Let’s say you file a bankruptcy on March 30.  You decide you are going to give up your condo.  It’s in foreclosure.  You need to move.  So you move instead of facing eviction.  Seems reasonable.  But condo associations and homeowner associations need cash.  And the mortgage company is not liable for the assessments until the foreclosure sale is done and until they actually receive the deed to the property.  So if you don’t pay these items after bankruptcy, the association can and often will sue you, especially in Illinois.

So it may benefit you to stay in the house or condominium after your bankruptcy.  Don’t pay the mortgage.  You are no longer liable for it.  Do pay your insurance.  And do pay your condo or homeowner’s association assessments.  Think of these expenses as rent.  You’ll avoid being sued for these items and you can take your time in preparing to move on in your life.

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