When a condo owner in arrears on assessments declares bankruptcy, a condo association often expresses concern about the effect of the bankruptcy on its ability to collect pre- and post-bankruptcy assessments.
The bankruptcy code states that fees or assessments that become due and payable after filing for bankruptcy protection are exempt from discharge. Any amounts owed prior to the filing the bankruptcy case are included in the discharge but may be reduced to liens against the property.
Under the New Jersey Condominium Act, NJSA 46:8B-21 (b), a condo association is entitled to a limited priority lien – over previously recorded liens (including mortgages) – for six months of “customary condominium assessments.” This statutory priority ensures that condo associations will be paid for some of the delinquent assessments instead of having their entire lien extinguished in foreclosure sales. Foreclosures often go hand in hand with bankruptcy.