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

Generally, bankruptcy leads to a discharge of all condo fees.  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 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 condo 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 and move instead of facing eviction.  Seems reasonable but condo associations and homeowner associations need cash.  The mortgage company is not liable for the special HOA 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  condominium after your bankruptcy.  Pay your condo insurance and 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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