Dealing With Homeowner Bankruptcies

There are many rewarding aspects of being on an HOA board. You get to know your community better, and you have the opportunity to make your neighborhood a better place to live.

However, there are also some difficult responsibilities that come with being on the board. One of the most challenging tasks is dealing with homeowner or member bankruptcies. This can be emotionally difficult, especially if you personally know the homeowners who are going through financial hardship. It also often involves working with legal professionals to protect the HOA’s interests in these situations.

COVID-19 and Bankruptcy: A Continued Challenge

When the COVID-19 pandemic began, government assistance programs like the additional $600/week in unemployment benefits helped many people continue making their mortgage and HOA assessment payments. However, as these emergency benefits have ended, many individuals, particularly in high-cost areas like Florida, are now facing renewed financial struggles. As a result, HOAs should be prepared for a surge in bankruptcy filings, with numbers possibly exceeding previous years’ records.

Chapter 7 vs. Chapter 13 Bankruptcy: What HOA Boards Need to Know

In Florida, individuals may file either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. A Chapter 7 typically involves liquidating non-exempt assets (such as the home) to pay off debts. In rare cases, the homeowner may be able to keep their home, but this is not the norm.

A Chapter 13 bankruptcy, on the other hand, allows the homeowner to propose a repayment plan that allows them to keep their home. This plan must be detailed and approved by the court, and creditors, including the HOA, may have the right to object or ask for modifications.

For HOA boards, it’s critical to meet all court-imposed deadlines. If there are any discrepancies in the filings or objections to a repayment plan, you must file your documents with the court by the deadline. Although this process is typically managed by the HOA’s legal team, it’s wise to appoint someone to track these crucial dates and ensure compliance.

Even if the HOA does not recover the full amount owed during a bankruptcy proceeding, there may still be an opportunity to collect unpaid dues. Under Florida law, new property buyers may be responsible for arrears that were not resolved as part of the bankruptcy. To ensure your association recovers what it’s owed, it’s essential to have an attorney experienced in creditors’ rights on retainer.

Looking Ahead: How AMI Can Help Your HOA

At AMI, we understand the strain that managing bankruptcies and financial challenges can place on HOA boards, especially in the aftermath of COVID-19. Our experts are here to guide you through this difficult process, ensuring your HOA’s best interests are protected. Let us help alleviate the stress of dealing with bankruptcies and guide your association toward smoother operations. Contact us today to learn more about how we can assist you.

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