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Chicago Bankruptcy Question: How are condominium association dues treated in a Chapter 7?

Chicago Bankruptcy Question of the Day: How are condominium association dues (or homeowner's association dues) treated in a Chapter 7 bankruptcy?  Most of the time, when you purchase a condominium or a townhouse, and often when you purchase a single family home in planned community, there is an association affiliated with the complex/community to which a consensual lien is granted on the property.  The association is comprised of the unit/home owners and each owner must make a payment to the association, usually monthly, in order to pay for the maintenance of common areas, property insurance on the building, etc.  The size and frequency of this payment varies as significantly as the types and values of the properties do.  How these association dues are treated in a Chapter 7 bankruptcy filing is relatively clear cut.

If you are intending to keep the property when filing for Chapter 7 bankruptcy protection, whether it is your residence or an investment property, the association dues must be paid.  If there are arrears at the time of filing, meaning that you are behind on your payments, then they will not be discharged in your Chapter 7 bankruptcy.  The association has the right to petition the court to remove the protection of the automatic stay of bankruptcy and proceed with an eviction proceeding if the dues remain unpaid. 

If you are surrendering the property in a Chapter 7 bankruptcy proceeding, you are still required to maintain your association dues after the Chapter 7 case has been filed.  This is an area where many bankruptcy filers have gotten themselves into trouble, often because of unclear or outright poor advice from their bankruptcy lawyers.  Any association dues owed up to the date of filing will be discharged in the Chapter 7.  Upon filing the Chapter 7, the filer is once again responsible for all association dues until the title of the property is legally transferred, usually upon completion of a foreclosure process.  Prior to 2005, an owner could simply surrender possession of the unit to the association and then no longer be held liable for the ongoing association dues.  This is no longer the law.

If you are considering filing for Chapter 7 bankruptcy protection in the Chicago area and you own real estate that is subject to association dues, it is important to have the representation of an experienced Chicago Chapter 7 bankruptcy attorney.  A good bankruptcy lawyer will properly advise you on how to treat the association dues, when to pay them or resume paying them and strategically time your bankruptcy filing to minimize the amount you must pay if you are surrendering the property.  The Chicago bankruptcy lawyers at Ledford & Wu are always willing to offer a free consultation to discuss your options and the possible issues arising in a Chapter 7 bankruptcy when association dues are involved.

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