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What it means when a Unit is “abandoned” in a bankruptcy context

What it means when a Unit is “abandoned” in a bankruptcy context

 

If you receive a notice from the bankruptcy court that a unit owner who filed Chapter 7 bankruptcy is intending to “abandon” his unit in the bankruptcy, it does not mean he is no longer liable for post-petition association fees.  Section 523(a)(16) of the Bankruptcy Code provides that post-petition association fees are not dischargeable if the Debtor still has a legal, equitable or possessory ownership interest in the unit.  In other words, until the title to the Unit transfers to a new owner, the Debtor is liable for post-petition fees.  Once the bankruptcy closes, which is typically a few months after the filing of the petition, the Association may (1) file a Money Judgment Complaint to collect post-petition fees, (2) file a Foreclosure Complaint to foreclose upon the pre-petition or post-petition lien, or (3) take both actions simultaneously.

This exception to discharge does not apply to Chapter 13 bankruptcies.  If the unit owner “abandons” his unit in Chapter 13 bankruptcy, the unit owner is not personally liable for post-petition fees.  However, in that case, the Association should file a Motion for Stay Relief to commence the foreclosure process.  If the unit owner is living in the unit or has a tenant living in the unit, he will most likely pay the post-petition fees.  If he does not pay, the Association’s Motion for Stay Relief will be granted and the Association can file a post-petition lien and foreclose upon that lien.

In either Chapter 7 or Chapter 13 bankruptcies, if the Debtor abandons his unit, it is beneficial to the Association to send out a quitclaim deed proposal to the Debtor’s bankruptcy attorney.  Instead of spending the legal fees associated with a foreclosure action, the Debtor may be willing to give the Association title so it can rent out the Unit until the mortgage company completes its foreclosure and the title passes to a new owner.