Goudelock (homeowner’s association dues) brief continued…


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. Read Part one here.

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

  1. The History And Effect Of Section 523(a)(16) Guides The Outcome In This Context.

In the months after Rosenfeld was decided, Congress sought to resolve the split in authority over the appropriate treatment of postpetition dues. It did so by reinforcing the central holding from Rosteck, while carving out some circumstances in which these debts should be excepted from discharge. Specifically, the legislative history notes that Section 523(a)(16) is intended

… to except from discharge those fees that become due to condominiums, cooperatives, or similar membership associations after the filing of a petition, but only to the extent that the fee is payable for time during which the debtor either lived in or received rent for the condominium or cooperative unit. Except to the extent that the debt is nondischargeable under this section, obligations to pay such fees would be dischargeable. See Matter of Rosteck, 899 F.2d 694 (7th Cir. 1990). Bankruptcy Reform Act of 1994, 140 Cong. Rec. H. 10,752 (Oct. 4, 1994) (emphasis added).

The addition of Section 523(a)(16) conclusively answers the question whether these postpetition assessments are “claims” for bankruptcy purposes. First, as the Supreme Court has reasoned with other 523(a) exceptions, “[h]ad Congress believed that [such] obligations were not ‘debts’ giving rise to ‘claims,’ it would have had no reason to except such obligations from discharge.” Davenport, 495 U.S. at 562 (concerning restitution debts). Likewise here, if homeowners’ association dues payable postpetition were not claims, then Section 523(a)(16) would be superfluous. Second, by recognizing that condominium fees assessed postpetition remained dischargeable, as long as the homeowner neither “lived in [n]or received rent” from the unit, Congress clearly intended to adopt the general rationale of Rosteck, but with some limits on its effect.[1]

Importantly, in enacting this exception, Congress chose not to amend Section 1328(a), thus still allowing such debts to be discharged in a Chapter 13 proceeding. See Pub. L. No. 103-394, § 309, 108 Stat. 4129, 4137 (1994). It is highly unlikely that this decision was a “statutory misstep,” as questioned by the Foster Court. See Foster v. Double R Ranch Ass’n (In re Foster), 435 B.R. 650, 659 (B.A.P. 9th Cir. 2010). At the time Section 523(a)(16) was enacted, the Chapter 13 superdischarge (described above) still allowed the discharge of debts such as those incurred by fraud. If fraud debts could have been discharged in a Chapter 13, it would have made little sense indeed to except these HOA assessments from the same discharge.

Because Section 1328(a) does not reference the 523(a)(16) exception, many cases continue to adhere to the Rosteck rule for Chapter 13 cases as a simple matter of statutory construction. See In re Ramirez, 547 B.R. 449, 452-53 (Bankr. S.D. Fla. 2016); In re Coonfield, 517 B.R. 239 (Bankr. E.D. Wash. 2014); In re Khan, 504 B.R. 409, 412 (Bankr. D. Md. 2014); In re Colon, 465 B.R. 657 (Bankr. D. Utah 2011); In re Kelly, No. 09-42376 TG, 2010 Bankr. LEXIS 1409, at *3 (Bankr. N.D. Cal. Apr. 28, 2010); In re Hawk, 314 B.R. 312, 316 (Bankr. D. N.J. 2004).

  1. Foster Should Not Be Followed In This Case.

This Circuit’s B.A.P. revisited the Rosteck/Rosenfeld split in its Foster decision. Characterizing its rule as “you stay, you pay,” the Foster Court was apparently more concerned with the outcome of the case than the language of the Bankruptcy Code. Foster, 435 B.R. at 661. This Court should decline to adopt the Foster rule, at least in the context of this case.

First and foremost, the Foster debtor was in a very different position than debtors like Ms. Goudelock. In Foster, the debtor sought to discharge all prepetition and postpetition HOA assessments, but continue residing in his home. Foster, 435 B.R. at 655. The court was concerned with this attempt at a “have your cake and eat it too” approach, and refused to believe that Congress intended to “discharge postpetition HOA dues under § 1328(a) when the debtor uses the cure and maintenance provisions under the chapter 13 to stay in his or her property after the order for relief.” Foster, 435 B.R. at 655. To drive this concern home, the court explained that the “rule in this case boils down to one of ‘you stay, you pay.’” Id. at 661. Here, by contrast, Ms. Goudelock did not choose to stay, and like many debtors in her position, apparently sought shelter under the Bankruptcy Code in order to help extricate herself from the property.

In order to reach its result, the Foster Court correctly noted that Section 523(a)(16) was “inapplicable” to Chapter 13 cases, but then remarkably extended the exception to Chapter 13 cases anyway. Compare Foster, 435 B.R. at 661 (“we hold that, as a matter of law, debtor’s personal liability for HOA dues continues postpetition as long as he maintains his legal, equitable or possessory interest in the property and is unaffected by his discharge.”), with 11 U.S.C. § 523(a)(16) (excepting such dues from discharge “for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest” in the property). Extrapolating this provision to Chapter 13 provisions, the court questioned whether it was a statutory misstep to exclude such obligations from the 1328(a) discharge, and disregarded entirely the fact that the mere existence of Section 523(a)(16) was an implicit recognition by Congress that such obligations were, in fact, claims arising prepetition. See Foster, 435 B.R. at 659. However, as described above, this logic ignores the plain text of Section 1328(a) and misses the importance of Section 523(a)(16).

Finally, citing Rosenfeld, the Foster decision also rested on the same misguided distinction between covenants running with the land (as determined by state law) and contracts. As described above, there is no basis for this distinction in the Code. Further, the Washington Supreme Court has subsequently described such assessments in a way showing that they fit squarely within the definition of claim. See Fulbright, 180 Wash. 2d at 763 (characterizing the obligation as a “a future lien for unpaid condominium assessments”).

In short, Foster was not guided by the text of the Bankruptcy Code, but by its concern that debtors would continue to reside in units without paying HOA fees. As shown below, there are other ways to treat that concern.

  1. There Are More Equitable Ways To Effect A Rule Resembling “You Stay, You Pay” While Allowing Debtors Like Ms. Goudelock A Fresh Start.

The authority reaching a different result than Rosteck, from Rosenfeld through Foster, has largely been guided by a concern that debtors will remain in homes without contributing to the HOAs governing their lots. To the extent that concern should be handled judicially, the answer is not to interpret Section 523(a)(16) as applying to Chapter 13 cases, which it clearly does not, but to treat these HOA liens as any other lien in bankruptcy. Fashioning such a rule would implicitly require those debtors who wish to keep the property to pay, while finally releasing those who seek a fresh start away from their property.

“More than a century ago, the Supreme Court held that a bankruptcy discharge of a secured creditor’s claim does not affect the status of the creditor’s underlying lien on the debtor’s property.” Hamlett v. Amsouth Bank (In re Hamlett), 322 F.3d 342, 347-48 (4th Cir. 2003) (citing Long v. Bullard, 117 U.S. 617, 620-21 (1886)). This long-standing principle is codified in the current version of the Bankruptcy Code, which enjoins collection of a discharged debt “as a personal liability of the debtor,” 11 U.S.C. § 524(a)(2), but largely preserves a secured creditor’s rights to the property itself, 11 U.S.C. § 524(c)(2). Thus, a lien can still be exercised against a debtor’s property post-bankruptcy, even if a debtor’s personal liability on that debt was extinguished by the discharge. See In re Isom, 901 F.2d 744, 745 (9th Cir. 1990).

This effect of discharge is most commonly apparent with mortgage debts. The discharge injunction protects the mortgage debtor from being sued personally on the debt post-bankruptcy. However, “a creditor’s right to foreclose on the mortgage survives or passes through the bankruptcy.” Johnson v. Home State Bank, 501 U.S. 78, 83 (1991). As a practical matter, this long-standing principle creates the result desired by the Foster Court: “you stay, you pay.” Debtors who wish to remain in their homes must continue paying on the discharged debt, or they risk foreclosure of the property.

This situation could be viewed as analogous. See Khan, 504 B.R. at 414. As described above, Washington law views such assessments as a lien on property. In accordance with Long, that lien survives bankruptcy, which encourages debtors like Foster who wish to remain in a property to pay the dues or risk losing it. But at the same time, debtors like Ms. Goudelock who surrendered the property in bankruptcy and obtained no benefit from the HOA whatsoever would be protected from a post-discharge lawsuit on an obligation that quietly accrued during the bankruptcy case. That fair result is a truly fresh start.

This fresh start fits well within the Chapter 13 framework that Congress created. First, while narrowing the Chapter 13 superdischarge in 2005, Congress chose not to incorporate the Section 523(a)(16) exception in the 1328(a) discharge. Otherwise, as described by one court, “the Debtors are not enjoying the benefits of the HOA and to hold Debtors liable for postpetition HOA dues when they no longer live at the Property and indeed have surrendered the Property to the secured lienholder is not only inequitable, but in contrast to the plain language of § 1328(a).” Colon, 465 B.R. at 663.

There are other ways that this approach fits within the structure of the Bankruptcy Code. For example, Congress crafted the Means Test to determine a debtor’s eligibility to file a Chapter 7, and help calculate a debtor’s monthly payment in a Chapter 13 case. Under this test, debtors may deduct HOA fees from their income to the extent they seek to “maintain possession of [their] primary residence.” See 11 U.S.C. § 707(b)(2)(A)(iii)(II)[2]. This deduction illustrates that Congress fully intended debtors to maintain HOA payments on properties they desire to keep, but not on properties whose possession is not to be maintained.

Allowing debtors a fresh start in these circumstances is equitable for their individual cases, but it also produces wider-scale economic benefits. By stripping personal liability from the debtor, HOAs have incentive to exercise a security interest promptly, thus allowing new residents to move in and start paying assessments. Further, removing this burden from debtors who have given up their property also helps them get past the effects of the mortgage crisis, and allows them to obtain their fresh start and become more economically productive citizens.

Finally, such a result would avoid conflict with the takings clause of the Fifth Amendment. Because the HOA would retain its property interest, the enforceable lien, there would be no taking that would invoke Fifth Amendment concerns.


For the reasons stated above, amicus curiae asks this court to reverse the decision of the district court.

Respectfully submitted, /s/ Jon Erik Heath



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 get to my website at www.mtvernonbankruptcylawyer.com

[1] This provision was amended again in 2005 to create the current-day exception, which includes all HOA assessments, and applies “for as long as the debtor or the trustee has a legal, equitable, or possessory ownership in such unit.” See Pub. L. No. 109-8, § 412, 119 Stat. 23, 107 (2005).


[2] This provision is incorporated into Chapter 13 calculations. 11 U.S.C. § 1325(b)(3).



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