Can HOA Fees Be Included in Bankruptcy in Arizona?

A homeowners association can ensure that your neighborhood stays beautiful and well-kept. But like everything else, it comes with a cost. And when finances are stretched, paying those costs can become challenging.

As such, many people want to know if HOA fees are dischargeable as part of a bankruptcy filing. The answer is that it depends. Some factors impacting whether HOA fees are dischargeable include:

  • When you incurred the fees
  • If you plan to stay in your home after filing for bankruptcy
  • What type of bankruptcy you’re filing for

To answer this question, we’ll provide an overview of bankruptcy filing in Arizona, how overdue HOA fees might apply and your options for avoiding this debt.

Arizona bankruptcy overview

There are two types of bankruptcy filings an individual can elect to file for: Chapter 7 or Chapter 13.

With Chapter 7, the courts will discharge you from unsecured debts. This can include credit card bills, medical bills, and more. In this form of bankruptcy, you do not have to repay the debts and the process will take up to six months.

Chapter 13 aims at helping you restructure your debts and pay them off over the next 3 to 5 years.

No matter which form of bankruptcy you file for, you’ll get an automatic stay of protection. This means that creditors cannot collect debts directly from you. They also cannot repossess any items or foreclose on your home.

HOA fees

Now let’s look at how HOA fees might apply to your bankruptcy. The goal of HOA fees is to keep your community looking good. However, if you don’t pay these fees, the HOA can put a lien on your house. And if you continue to not pay the fees, your HOA could foreclose on your home.

Once you get behind on the payments, you also might not be able to just pay a lump sum to make it go away. That’s because you’ll have accrued late fees, legal expenses and interest. Additionally, most HOAs will not decrease the total amount you owe to remove the lien on your home. However, it is worth it to ask about what they might accept or how you could start a payment plan to pay off the debt.

Finding a way to start paying new HOA fees while also paying off the debt you owe on overdue payments is a good idea to avoid foreclosure. If the HOA does choose to foreclose on your home, just know that they must follow proper procedures and give you plenty of notice.

Filing for bankruptcy to avoid HOA fees

If negotiations and creating a payment plan with your HOA do not work, your last resort is filing for bankruptcy. When you file, you’ll get the automatic stay of protection to keep the HOA from foreclosing on our home.

The HOA can file a motion for relief from the automatic stay. And if the courts grant it, the foreclosure process can proceed. But for the most part, you should have some protections to stay in your home at least temporarily if you file for bankruptcy.

When filing for Chapter 7 bankruptcy, you’ll need to be prepared to move out of the home if you want the HOA fees discharged. That’s because once you discharge the debt, creditors have no responsibility to continue their services to you. If you choose to keep your home and continue living there, you’ll need to pay all overdue HOA fees and plan for keeping up on new fees.

Chapter 13 bankruptcy helps create a plan for paying off all debts. This will include your HOA fees. Filing for this form of bankruptcy can help make your HOA fees manageable over the next 3-5 years while you get your expenses under control.

Just know that the only debts included in your bankruptcy filing are those that you have at the time of filing. So the 3-5 year plan to pay off these debts will not include ongoing HOA payments.

If you’re still unsure how different forms of financial responsibilities will apply to an Arizona bankruptcy filing, contact our office. We’ll explain your legal rights and get you on the road to financial stability.