Condominium Associations and Unit Owner Bankruptcies

Posted January 17, 2014Publications

Posted by Adam S. Kessler, Esq.

Condominium associations, their boards and management companies often are uncertain how to handle collection of assessments after a unit owner has filed for bankruptcy.

The General Rule

The New Jersey Condominium Act, N.J.S.A. 46:8B-1, et seq. gives a condominium association the power and responsibility to make and collect assessments. N.J.S.A. 46:8B-14(b).

The Condominium Act specifically provides that by acceptance of title, a unit owner is “conclusively presumed to have agreed to pay his proportionate share of common expenses accruing while he is the owner of a unit.” N.J.S.A. 46:8B-17.

The Appellate Division has noted that a unit owner’s obligation to pay assessments is nearly “unconditional”. Glen v. June, 344 N.J. Super 371 (App. Div. 2001).

How Bankruptcy Filings Effect the General Rule

A unit owner is responsible to an association for assessments commencing from the date a unit owner files a bankruptcy petition.  This is because post-petition condominium assessments are exemptions to discharge.

Post-Petition Maintenance Prior to Discharge

Under Section 523(a)(16) of the Bankruptcy Code, post-petition condominium assessments are payable and non-dischargeable as soon as the debtor files a petition.  However, associations cannot pursue the post-petition non-dischargeable assessments until a discharge is granted by the Bankruptcy Court.

The Bankruptcy Court held in In re Hawk, 314 B.R. 312 (Bankr. D.N.J. 2004), that post-petition condominium assessments are a “claim”, as that term is defined in Section 362(a)(5) and (6), that arose upon the debtor taking title and before the commencement of the bankruptcy.  As a result, pursuing post-petition maintenance prior to discharge would violate the Bankruptcy Code’s automatic stay provision.

The Hawk Court reasoned, in part, that Congress defined when post-petition fees and assessments can and cannot be discharged in Section 523(a)(16), thereby implicitly affirming that future post-petition assessments are claims. The Court stated that if post-petition fees were not claims, they would not be subject to discharge.

Conclusion

Even if a discharge is granted for pre-petition assessments, the unit owner continues to be responsible to the association for post-petition assessments.  However, post-petition assessments are subject to the automatic stay provision of the Bankruptcy Code and cannot be pursued by the association until a discharge is granted by the Bankruptcy Court.