An owner in our community filed for bankruptcy...what can and should we do? Even though the worst of the real estate crisis is behind us, this is still a common question facing association boards. Ever heard of an "automatic stay?" How about the owner doesn't want to pay assessments because they "surrendered" the property to the bank? Or, had an owner say "I don't have to pay assessments anymore because I filed for bankruptcy?" Click on the jump for a complete tutorial on bankruptcy for community associations....
- Example - owner/debtor owes association $5,000 when they file for bankruptcy. The bankruptcy trustee ultimately decides that all creditors will get .80/dollar and the repayment plan will be over 5 years. The debtor will make its payments to the trustee each month. Then the trustee will divide that payment amongst the creditors each month. The association will get monthly payments of $66.66 from the trustee for 60 months. Keep in mind though, this is ONLY for the debtor prior to the filing of bankruptcy. The owner is always responsible for each and every payment AFTER the petition for bankruptcy.
- When you get a petition for bankruptcy DON’T panic.
- DO create a PACER account. PACER is the federal database for bankruptcy court filings. It's free to light uses and you can track and follow bankruptcy matters there.
- DON’T send any demand letters, file files, foreclose, or continue pending foreclose matters.
- If you need to contact the owner/debtor DO it through their attorney which can be found on the PACER system above.
- If it's a Chapter 13, DO contact an attorney to file a proof of claim.
- An owner CANNOT be forever discharged from paying assessments.