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Understanding How Bankruptcy Affects an HOA


People are often surprised to learn that not all debts are wiped out in bankruptcy. Condo and HOA assessment fees fall in the non-dischargeable category in Tennessee, which means assessments subject to discharge depend on the case. It also means that the homeowner is responsible for fees due after the bankruptcy and until the unit is sold. If you serve on the Board, you owe it to your community to understand how bankruptcy laws affect HOAs and how to protect the association.

While some homeowners consider non-dischargeable assessment fees as unfair, HOAs need the money to operate and maintain the community. As a Board member, you know that every homeowner in the community suffers when assessments aren’t paid. Other owners have either to pay more or receive fewer services. Unpaid assessments can distress the entire community, affecting maintenance and operations that cause a decline in resale home values.

An example in a recent blog by Dinkelspiel, Rasmussen & Mink helped clarify how non-dischargeable assessment fees in bankruptcy. “John Doe owes an association $1000.00 as of the date of filing in his bankruptcy. The on-going assessment is $100.00/month. The $1000.00 is dischargeable. The on-going assessment (and any late fees) of $100.00/month is not dischargeable.” An HOA can take steps to collect all non-discharged assessments.

The blog also mentioned that Western Tennessee has one of the higher rates of bankruptcies. Fortunately, we haven’t had that level of bankruptcies in East Tennessee, but they still occur. It can happen in your association, so it’s important to be knowledgeable about your options.

One of the best ways to collect past due assessments is to work out a payment plan. However, these plans aren’t successful if the homeowner isn’t willing to work with you. Other collection options exist, but it can be complicated since it is often dependent upon the situation. Your Community Association Manager and association attorney can provide the management and advice to ensure your association’s interests are protected.

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