The issue of condo fees is one of the rare areas of bankruptcy that is clear cut. The debtor's liability hinges on specific dates and events. The Bankruptcy Abuse Prevention and Consumer Protection Act made some alterations to the bankruptcy code in 2005, addressing such fees, but the change doesn't necessarily work in the debtor's favor.
Timing is Everything
All condo fees that you owe on the date you file for bankruptcy are dischargeable. Any that come due after this date are not. You'll continue to owe them as long as you remain the recorded owner of the condominium. It doesn't matter whether you intend to keep the residence or you're surrendering it as part of your bankruptcy proceedings. As long as you're the owner, you're responsible for paying fees that accumulate after you file your petition.
If you file for Chapter 7 protection, you might be able to elect to keep your condo. If you can continue making mortgage payments and if the lender agrees, you can usually reaffirm the loan and keep the residence, provided your equity does not exceed your available homestead exemption. The amount of the exemption is a certain dollar value in your real estate's equity that the trustee cannot take to pay your creditors. If you can protect the equity and keep making payments, you can keep the residence. If you decide to do this, you're responsible for all associated fees going forward. If you surrender the condo to the mortgage lender as part of your bankruptcy proceedings, you're responsible for the fees until the lender completes the foreclosure process and sells the unit to someone else. Until this occurs, you remain the legal owner, so responsibility for the fees falls to you.
Chapter 13 is the type of bankruptcy in which you repay your debts over a three to five year period. Creditors cannot take collection actions against you during this time. If you owe past due condo fees that accrued before you filed for bankruptcy, you can include them, as well as any past due mortgage payments, in your repayment plan. You must continue to make current mortgage payments and pay current condo fees during the life of your plan. If you owe more on your mortgage than your condo's fair market value, Chapter 13 strips or eliminates any liens against the property that exceed that value. Therefore, if the condo association has placed a lien against your home due to past due fees, the lien is eliminated and the debt becomes unsecured. Additionally, in Chapter 13, you have up to five years to pay off the lien, and the condo association cannot tack on interest during this time. If there is no lien, you would simply pay off the fees as part of your plan. As an unsecured debt, the condo association may or may not receive all you owe.
At least one bankruptcy court in Tennessee has held that a mortgage lender was responsible for post-petition condo fees when the debtor surrendered the property in bankruptcy, but this was an extraordinary circumstance. The lender took its time with the foreclosure process, resulting in unnecessary fees piling up for the debtor who was no longer in possession of the home. If you find yourself in a position where you've surrendered your condo but the foreclosure process seems to be taking an inordinately long time, speak with a lawyer.