What can our association do if one of the unit owners files for Bankruptcy?

The very first thing an association should do is stop all collection efforts.  This means no more notices to the debtor.  This is very importation because of the imposition of the automatic stay which prevents any collection efforts against the debtor.  This also includes withholding any amenity rights (i.e. pool passes, parking or towing the debtor’s vehicle) because of past due assessments.  Assessments due after the date of the bankruptcy filing must continue if the debtor is to remain in the unit, but the Association must be careful not to collect or enforce any sanctions against the debtor because of pre-petition (amounts owed prior to the bankruptcy filing).

The association should also split the accounting into pre and post-petition.  This will show what is owed prior to the bankruptcy filing and what is done after the date of filing.  This is significant because what the debtor is seeking by filing a bankruptcy is a discharge for all debts owed prior to the bankruptcy filing. 

In the case of a Chapter 13 filing the association should file a Proof of Claim for the amounts owed prior to the bankruptcy filing (pre-petition), which will ensure that the association will get a portion of any distribution  of assets to creditors.  If the association has pre-petition lien claims, this is significant because if the debtor intends to remain in the unit, secured claims must be paid.  If the association has unsecured debt (amounts owed not included in a lien claim), filing a proof of claim is also very important because it will insure that the association will get is proportional share of distribution to unsecured creditors under the debtor’s chapter 13 plan. 

Will our association get paid the owed arrears?

If the unit owner wants to retain the property, the association will get paid.  If the unit owner is not looking to retain the property, recovery of arrears can be more of a challenge. Any lien claims remaining on the unit would mean foreclosure remedies would still be available after the bankruptcy case is dismissed, closed or if relief from stay is granted.

Can we prevent a unit owner in arrears from utilizing common amenities such as the pool, parking, and clubhouse?

The quick answer is no. As mentioned above, once a bankruptcy is filed all collection efforts must stop.  No further action can be taken or initiated to collect pre-petition amounts due until and unless the bankruptcy case is dismissed, closed or relief from stay is obtained.  This would include preventing the unit owner from access to the amenities. 

What steps can be taken to protect the association?

Many things can be done to protect the association’s claims and rights in a bankruptcy case, the least of which is to simply file a notice of appearance so that all notices are received.  Reviewing the Chapter 13 Plan, filing necessary objections, filing motions for relief from the automatic stay and Proofs of Claims are all actions available to protect the association’s rights.

What do we do if the debtor abandons their unit?

In a Chapter 7 and 13,