BANKRUPTCY MONITORING

If a homeowner files bankruptcy, we will review the paperwork sent to the Association and handle the details from there. Bankruptcies need to be monitored on a regular basis. If an owner does not follow the plan, it can be dismissed which means the Association can proceed with their collection activity as well as all the other creditors i.e.; the first or second mortgage. Missing a notice of dismissal because someone does not know what it means or how to handle it can cost the Association valuable time to begin its collection efforts again or worse could cause the Association to miss an opportunity to collect on the debt. Timing is key when attempting collection at this stage of the process because the first mortgage or possibly second mortgage could be ahead in the foreclosure process. Why is this important? It's important because everyone has to follow the same foreclosure process and timelines, which basically means that if the Association has already recorded it's Notice of Default, but the first mortgage hasn't, then the Association can compete the sale first. So, it really is not a "done deal" when a homeowner files bankruptcy, there is no guaranteed outcome. That's why it is so important to have a company like ASAP handling the bankruptcy monitoring for you.

When a homeowner files bankruptcy the account needs to be split between the Pre and Post Petition debt. This is important because owners that file a bankruptcy chapter 13 - (the wager earner plan, which is basically a forced payment plan) need to receive a billing statement for the Post Petition assessments as soon as possible so they can begin paying those assessments directly to the Association and not create another delinquency. If a lien has been recorded against the property prior to the owner filing, the Association is a secured creditor and should be listed in the owners bankruptcy plan. The Pre Petition amount is then paid through the bankruptcy trustee in small monthly amounts over the course of the bankruptcy plan that can last up 5 years.

If the owner becomes delinquent in the Post Petition Assessments, the Association simply re-assigns the case to ASAP to handle the collection activities for the post debt. Since the owner is still protected by the automatic stay that is created by the bankruptcy, ASAP has to handle the collection activities differently. Usually a letter and follow up call to the Attorney clears up the matter, however sometimes retaining counsel to obtain a Relief from Stay from the bankruptcy court, which removes the bankruptcy protection, is the only option to encourage regular, timely payment of the assessments else the owner risks loosing the property through foreclosure.

If the owner files chapter 7, (the asset liquidation plan) and a lien has been recorded against the property prior to the owner filing bankruptcy, the Association is a secured creditor and should be listed in the owners bankruptcy. This bankruptcy plan takes about 90 days to complete and upon receipt of a notice of discharge the Association can resume collection activities where they left off in pursuit of foreclosing on the property. If Association is unsecured because there is no lien, the Association will have to write-off all of the pre petition debt and can only collect on the post petition debt if the owner occupies or rents out the property. It is important to also note that if the property is or has been foreclosed by another lender the Association will have no further claim because a chapter 7 discharge eliminates a debtor’s personal liability.

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