When A Unit Owner Files for Bankruptcy in a Connecticut Common Interest Community
By: Robert Pacelli
Under Connecticut condominium law, owners are required to pay a wide variety of charges, such as for maintenance, yard work, etc. What happens to monies owed the condominium association when a unit owner declares bankruptcy? Overdue common charges, special assessments, fines, fees and other charges do not “disappear” when an owner files for bankruptcy protection. In fact, common charges are not dischargeable in bankruptcy. This means that whether the owner files a Chapter 7 or a Chapter 13 petition, the common charge debt is still due when the person completes the bankruptcy. So, the payment may be delayed by the owner’s bankruptcy, but eventually the Association will be paid or can foreclose on the unit.
When confronted by an owner’s bankruptcy, you may wish to consult with a Connecticut condominium lawyer for guidance. ZNC has deep experience with bankruptcy law, and its bankruptcy lawyers work closely with ZNC’s Connecticut common interest ownership attorneys to reach practical solutions to an owner’s bankruptcy. But, here are some general principles to keep in mind when an owner files for bankruptcy court protection:
- STAY OF COLLECTION ACTION: During the time a debtor has a bankruptcy petition pending (that is, after filing and before a discharge, dismissal, or approval of a Plan), there is an “automatic stay” placed on all creditors of the debtor. During this “stay” period, the Association cannot start or continue a foreclosure suit collecting past due charges. Once the unit owner completes the bankruptcy, or is dismissed, the stay is lifted, and the Association can continue its collection activities.
- CHAPTER 7: In a Chapter 7 bankruptcy, most debts are discharged, but as noted above, not condominium common charges. An owner can only keep the house and avoid foreclosure in a Chapter 7 if they have enough income to keep paying the mortgage and the common charges. Normally the Association does not have to file an appearance in Bankruptcy Court for a Chapter 7 bankruptcy case. Once the Chapter 7 is over, when the court grants the owner a discharge or dismisses the case, the Association can resume its collection action if the owner is not current.
- CHAPTER 13: In a Chapter 13 bankruptcy, the debtor puts together a plan to pay back her creditors over a three to five-year period. The Association, through its counsel, should file an Appearance in this case and then file a “Proof of Claim.” A Proof of Claim lists all amounts owed by the debtor up to the time of the filing of the bankruptcy, including attorneys fees incurred prior to and in response to the Chapter 13 case. If the Court finds the debtor’s plan of repayment satisfies the law’s requirements, the Court will approve the plan. The plan for repayment will be administered by a court-appointed Trustee, who will receive the debtor’s monthly payment as provided by the approved Plan, and then disburse to each creditor (including the Association) the monthly or quarterly payments due.