The Communicator - Volume 2, Issue 1 - (Page 11)

Lien Stripping and Chapter 13 Bankruptcies The effects on homeowner associations DURING THE CURRENT real estate dow nturn, most homeow ner asso ciations and managers thought that things could not get much worse. However, it can, and probably will, at least with respect to Chapter 13 bankruptcy situations. In many ways, a homeowner bankruptcy filing may actually be beneficial to a homeowner association. It may free a homeowner from unsecured debts or permit a homeowner to space out payment of arrearages on a secured debt, both of which result in money being freed up which could allow the bankrupt homeowner to pay association assessments. It can also serve as an incentive for the homeowner to at least keep current association assessments because the failure to do so could negatively affect the homeowner’s bankruptcy. However, a little-used bankruptcy provision dealing with secured claims (e.g., a Notice of Delinquent Assessment) now appears ready for stardom in a bankruptcy court near you. Given the huge potential rewards that await a distressed homeowner, there is now even more of an incentive to file a Chapter 13 bankruptcy. This bankruptcy incentive is referred to as “lien stripping” a secured claim. (Lien stripping is not permitted in a Chapter 7 bankruptcy.) Generally, a debt that is secured prior to the time of the bankruptcy filing “survives” bankruptcy and remains enforceable despite the bankruptcy. (As with many laws regarding bankruptcy there are exceptions to this rule but they are beyond the scope of this article.) The survival of a lien is a main reason associations are advised to initiate the collection process as early as is feasible and obtain a lien. Without trying to get overly legal or technical, a Chapter 13 plan may modify the rights of holders of secured claims except for such claims that are secured only by an interest in the debtor’s residence. The United States Supreme Court in Nobelman v. American Savings Bank held that claims secured by the debtor’s residence could not be The Communicator • 11

Table of Contents Feed for the Digital Edition of The Communicator - Volume 2, Issue 1

The Communicator - Volume 2, Issue 1 Contents President’s Message Does Your Insurance Agent Know Something You Don’t? Lien Stripping and Chapter 13 Bankruptcies Mortgage Crisis Impacts Directors Legislative Bill Status Report Annual Holiday Awards Banquet & Casino Night 2009 Events & Educational Calendar New Members Index to Advertisers

The Communicator - Volume 2, Issue 1

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