Homeowner’s Association dues and bankruptcy. This. is. big.

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, this one is a biggie!

The Ninth Circuit will soon hear a case as to whether Homeowner’s Association dues and fees COULD be dischargeable! The case is Goudelock v Sixty-01 Association of Apartment Owners and everyone in bankruptcy will be watching for the decision.

Jon Erik Heath of the National Association of Consumer Bankruptcy Attorneys prepared a brief for the case and it is reproduced here and in the next few blogs. It is excellently well-plead and I wanted to share it with you.



Debtors like Ms. Goudelock are textbook examples of the honest but unfortunate debtors the Bankruptcy Code is intended to assist. She surrendered her property as part of her Chapter 13 bankruptcy, and devoted a portion of her income to repayment of her debts for more than four years before receiving a discharge. Yet, instead of receiving a fresh start, she now owes more money to her former homeowners’ association (HOA) than when she filed bankruptcy.

This result is backwards. Chapter 13 bankruptcy serves a rehabilitative purpose, but that purpose is thwarted if the debtor emerges from the bankruptcy with lingering, or even growing, debts to HOAs from which the debtor had long extricated herself.

Most importantly, the broad definition of “claim” under the Bankruptcy Code mandates a different result – one more in line with the Supreme Court’s Davenport decision and the Rosteck line of cases. Cases reaching the opposite result, such as Rosenfeld and Foster, do so by creating a distinction between covenants running with the land and contract claims, which does not exist anywhere in the broad definition of “claim.”

This Court should adhere to the text of the Bankruptcy Code, and cases such as Davenport and Rosteck that properly apply it, and reverse the decision below.


The oft-cited principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor. Harris v. Viegelahn, — U.S. —, 135 S. Ct. 1829, 1838 (2015); Kokoszka v. Belford, 417 U.S. 642, 645 (1974). This purpose can only be achieved by casting a wide net over the debtor’s financial affairs, assets and liabilities alike. Once that net is cast, the way those assets and liabilities are administered depends on the bankruptcy chapter, with Chapter 13 being the legislatively preferred route for individuals.

This particular Chapter 13 issue – the dischargeability of HOA assessments payable postpetition – is governed by the plain language of the term “claim,” and the lessons drawn from Section 523(a)(16), both of which have been convoluted by the Rosenfeld line of cases. See River Place E. Hous. Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833 (4th Cir. 1994). Even the policy concerns raised by those cases could be treated in less extreme fashion by treating HOA obligations as any other secured debts. In order to help effectuate the policy behind Chapter 13 repayment plans, this Court should adhere the plain text of the Code, and follow the Rosteck line of authority. See In re Rosteck, 899 F.2d 694 (7th Cir. 1990).

  1. The Bankruptcy Code Is Intentionally Broad In Both Its Coverage of “Claims” And The Scope Of The Chapter 13 Discharge.

Because the proper treatment of HOA assessments requires some explanation of how the Bankruptcy Code treats debts more generally – especially in a Chapter 13 context – it is important first to discuss how some of the relevant process actually works.

  1. Congress Gave “Debt” The Broadest Possible Definition, While Narrowly Limiting The Exceptions Of Such Debt From Discharge.

The end goal in most bankruptcy cases is the discharge order. That order marks the “fresh start” for the debtor by generally discharging all “debts” rooted in his or her pre-bankruptcy past. See e.g., 11 U.S.C. §§ 727(b); 1228(a) & (c); 1328(a) & (c); Cal. Dep’t of Health Servs. v. Jensen (In re Jensen), 995 F.2d 925, 929-30 (9th Cir. 1993).

For this discharge, and its resulting fresh start, to have any meaning, Congress mandated that it cover a broad spectrum of “debts.” The Code defines “debt” as any “liability on a claim,” and in turn, defines “claim” as the “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(4)(A) & (11). By design, this language creates “’the broadest possible definition’ of claims so that ‘all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case.’” In re Christian Life Ctr., 821 F.2d 1370, 1375 (9th Cir. 1987) (quoting S. Rep. No. 989, 95th Cong., 2d Sess. 21, 22, reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 5807, 5808). Thus, this definition, which “makes no reference to purpose” of the obligation even includes debts that are outside the “traditional creditor-debtor relationship.” Pa. Dep’t of Pub. Welfare v. Davenport, 495 U.S. 552, 558-9 (1990).[1]

If a debt meets this broad definition, then there are only narrow circumstances when it is to be excepted from the bankruptcy discharge. “[W]here Congress has intended to provide… [such] exceptions to provisions of the Bankruptcy Code, it has done so clearly and expressly.” FCC v. NextWave Pers. Communs. Inc., 537 U.S. 293, 302 (2003); see also Davenport, 495 U.S. at 563. Those clear exceptions mostly exist within Section 523(a), which enumerates 19 different categories of generally nondischargeable debt – some of which do not apply to every bankruptcy chapter. See 11 U.S.C. § 523(a)(1)-(19). Because of the importance of providing honest debtors with a fresh start, these exceptions are construed narrowly, and in favor of the debtor. Fezler v. Davis (In re Davis), 194 F.3d 570, 573 (5th Cir. 1999); Inst. of Imaginal Studies v. Christoff (In re Christoff), 527 B.R. 624, 629 (B.A.P. 9th Cir. 2015).

  1. By Design, Chapter 13 Repayment Offers Greater Relief To Debtors Than Chapter 7 Liquidation.

The Code offers a number of avenues for a consumer debtor to obtain this broad discharge of debt, most commonly by liquidation (Chapter 7) or by repayment plan lasting three to five years (Chapter 13). Because Chapter 13 is the preferred route to discharge, there are a number of incentives to encourage such filings, such as a broader discharge.

“The legislative history behind chapter 13 relief supports and promotes debtor rehabilitation,” Frazer v. Drummond (In re Frazer), 377 B.R. 621, 631 (B.A.P. 9th Cir. 2007), and its use over Chapter 7 has always been encouraged. Bobroff v. Continental Bank (In re Bobroff), 766 F.2d 797, 803 (3d Cir.1985) (citing H.R. Rep. No. 595, 95th Cong., 1st Sess. 118 (1977), U.S. Code Cong. & Admin. News p. 5904). This is so because “[p]roceedings under Chapter 13 can benefit debtors and creditors alike.” Harris, 135 S. Ct. at 1835. “Debtors are allowed to retain their assets, [while]… creditors… usually collect more under a Chapter 13 plan than they would have received under a Chapter 7 liquidation.” Id.

In order to steer debtors away from liquidation and towards the preferred Chapter 13 debt adjustment plans, Congress created a number of incentives for filers under the chapter. Most notably, a “discharge under Chapter 13 is broader than the discharge received in any other chapter.” United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 268 (2010) (quoting 8 Collier on Bankruptcy ¶ 1328.01, p. 1328-5 (rev. 15th ed. 2008)). It is well-established that this “broad discharge was provided by Congress as an incentive for debtors to opt for relief under that chapter rather than under chapter 7.” Ryan v. United States (In re Ryan), 389 B.R. 710, 719 (B.A.P. 9th Cir. 2008). Indeed, the breadth of the Chapter 13 discharge under Section 1328(a) is so expansive that, at least prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), it was colloquially known as the “superdischarge.” See id.

“Although § 1328(a)’s so-called chapter 13 ‘superdischarge’ was eroded by BAPCPA, there are still at least eleven categories of debt that are dischargeable in chapter 13 but not in chapter 7: 11 U.S.C. §§ 523(a)(6) (in part), (7), (10), (11), (12), (14B), and (15)-(19).” Fridley v. Forsythe (In re Fridley), 380 B.R. 538, 544 n.5 (B.A.P. 9th Cir. 2007). These categories of debt that remain dischargeable in Chapter 13 cases include those arising from the willful and malicious injury to property, 11 U.S.C. § 523(a)(6), property divisions from divorce, 11 U.S.C. § 523(a)(15), some securities fraud, 11 U.S.C. § 523(a)(19), and as relevant here, homeowners’ association dues payable postpetition, 11 U.S.C. § 523(a)(16. [2]

It is important to keep in mind both the incentive structure supporting the Chapter 13 discharge, and its ultimate power, when analyzing homeowners’ association dues that are clearly covered under the Section 523(a)(16) the exception, and thus included in the Chapter 13 discharge.

  1. The Text And Structure Of The Bankruptcy Code Enable HOA Debts Coming Due Postpetition To Be Discharged In Chapter 13 Cases.

On its face, an HOA obligation existing at the time of bankruptcy falls squarely within the definition of claim. It is an existing right to payment that is contingent on future events. This is especially true for condominiums in Washington, where “a future lien for unpaid condominium assessments is established at the time the condominium declaration is recorded, even though it may not be enforceable until the unit owner defaults on his or her assessments, if ever.” BAC Home Loans Servicing, LP v. Fulbright, 180 Wash. 2d 754, 763 (2014).

Cases such as Rosteck support this straightforward statutory analysis, especially when coupled with the subsequent input from Congress in its enactment of Section 523(a)(16). By contrast, the Rosenfeld line of authority, including the B.A.P.’s Foster decision, creates a distinction between claims running with the land and contractual claims, which is not referenced anywhere in the Code. Instead, the Rosenfeld cases were apparently decided based on, or strongly influenced by, a “you stay, you pay” policy, which can be handled in more equitable ways that better support the fresh start promised by the Code.

  1. The Language And Structure Of The Bankruptcy Code Support The Adoption Of Rosteck.

The seminal case on this issue is Rosteck. When the Seventh Circuit was confronted with the question almost 30 years ago, it rightly turned to the text of the Bankruptcy Code. Relying on the broad definition of “claim,” the court reasoned:

…the Rostecks had a debt for future condominium assessments when they filed their bankruptcy petition. It is true that the Rostecks did not actually owe money to Old Willow for assessments beyond those Old Willow had assessed before their bankruptcy. But the condominium declaration is a contract, and by entering that contract the Rostecks agreed to pay Old Willow any assessments it might levy. Whether and how much the Rostecks would have to pay in the future were uncertain, depending upon, among other things, whether the Rostecks continued to own the condominium and whether Old Willow actually levied assessments. But, as we have seen, contingent, unmatured, unliquidated, and unfixed debts are still debts.

Rosteck, 899 F.2d at 696-7 (internal citations omitted). This straightforward rationale was widely followed in the following years. See In re Cohen, 122 B.R. 755, 758 (Bankr. S.D. Cal. 1991); In re Garcia, 168 B.R. 320, 324-25 (Bankr. E.D. Mich. 1993); In re Lamb, 171 B.R. 52, 55 (Bankr. N.D. Ohio 1994); In re Wasp, 137 B.R. 71, 72 (Bankr. M.D. Fla. 1992) (“Any Association fees coming due after Debtors’ filing of their bankruptcy petition were no more than unmatured portions of their original liability to the Association.”); In re Affeldt, 164 B.R. 628, 631 (Bankr. D.Minn. 1994), aff’d on other grounds 60 F.3d 1292 (8th Cir. 1995).

As noted by the courts below, in 1994, the Fourth Circuit chimed in on this issue in the leading case going the other direction. See generally Rosenfeld, 23 F.3d 833. In the view of the Rosenfeld Court, “the obligation to pay assessments is a function of owning the land with which the covenant runs. Thus, Rosenfeld’s obligation to pay the assessments arose from his continued post-petition ownership of the property and not from a pre-petition contractual obligation.” Id. at 837. However, the Court did not explain where it got this distinction between an obligation running with the land and a pre-petition contract for purposes of deciding a claim. In fact, the broad statutory definition of “claim” does not support such a distinction. See 11 U.S.C. § 101(4)(A). [3]

Some of Rosenfeld’s logic was also divorced from reality – at least present-day reality. The Court found its holding sustainable because it believed that the solution was simple for a debtor who wished to obtain a fresh start: simply “transfer title to the property, if necessary by a deed in lieu of foreclosure.” Rosenfeld, 23 F.3d at 838. However, for many debtors who seek to surrender their homes in Chapter 13 proceedings, especially in recent years, this advice is unworkable. The process to complete a deed-in-lieu-of-foreclosure transaction is a wholly voluntary one by the bank, and it can sometimes be lengthy to fully consummate it even if the bank agrees, which it often does not. Further, completing the bank’s application process can be difficult, if not impossible, if there are outstanding HOA assessments or any other liens secured to the property, because the bank cannot obtain clear title through a deed in lieu of foreclosure. Instead, debtors such as Ms. Goudelock find themselves in the absurd position of being deprived of a fresh start on account of an asset that they surrendered as part of the bankruptcy.


I’ll present the rest of the brief in my next blog.

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also go to my websight through www.mtvernonbankruptylawyer.com


[1] The specific result from Davenport was partially superseded when Congress amended Section 1328(a) to exclude some restitution from the Chapter 13 discharge, see Criminal Victims Protection Act of 1990, Pub. L. No. 101-647, 104 Stat. 4789, but the principles upon which Davenport is based are still valid.

[2] The provision dealing with homeowners’ association dues refers to those fees “becom[ing] due and payable after the order for relief.” 11 U.S.C. § 523(a)(16). The phrase “after the order for relief” means postpetition. See 11 U.S.C. § 301(b) (“The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter.”).


[3] Presumably, this was the Rosenfeld Court’s attempt to distinguish Rosteck, where the Court in dicta reasoned that “the condominium declaration is a contract, and by entering that contract the Rostecks agreed to pay Old Willow any assessments it might levy.” Rosteck, 899 F.2d at 696.



One thought on “Homeowner’s Association dues and bankruptcy. This. is. big.

  1. Pingback: Goudelock (homeowner’s association dues) brief continued… | Curry Law Office

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