Bankruptcy is one word no one likes to hear. As hard as it may be for an individual to file for bankruptcy, it also presents numerous hardships for an association. If one of your residents files for bankruptcy, keep these things in mind.
- Two common types of bankruptcy – If the resident files for Chapter 7 bankruptcy they claim to have no assets. Chapter 13 Bankruptcy is usually filed when the resident is a “wage earner”.
- Chapter 7 Bankruptcy – When someone files for Chapter 7 Bankruptcy, the association will receive a notification alerting them that the resident has no assets from which distributions can be made to creditors.
- Chapter 13 Bankruptcy – If the resident files for Chapter 13 Bankruptcy then the individual will file a payment plan with the court for pre-petition debt (debt accrued before bankruptcy was filed). The court will identify a trustee who collects payments and distributes them to creditors, including your association.
- Legal Action – Never try to handle a bankrupt resident without an attorney. An attorney is invaluable as he or she can help your association file the proper motion during bankruptcy proceedings. Having good legal council will help protect the association’s interests.
While it may feel like there isn’t much the HOA can do, it is still important to monitor the resident’s bankruptcy case. By paying attention and having a good attorney, your association is more likely to receive payment on uncollected debts. While we don’t wish this situation on any association, we do hope you feel better prepared to handle it now!
For more information on how your association should handle a resident filing for bankruptcy, contact Spectrum Association Management today!
