Bankruptcy can affect a condo association's ability to collect delinquent amounts from owners. When an owner files for bankruptcy, the association must cease any collection action against the owner until the bankruptcy has either been denied or discharged. The balance that has accumulated up to the date of the bankruptcy filing is protected from legal action.

Depending on the type of bankruptcy, the association may be able to recover all or part of the debt through a bankruptcy payment plan (Chapter 13) or the debt may be discharged and not collectible against the owner (Chapter 7).

But what happens if the owner then forecloses? Per the IL Condo Act the association can collect six months of unpaid assessments plus legal fees from a third party purchaser at judicial sale or upon re-sale from the bank to a new owner, provided it has taken the proper legal steps. Would the owner's balance prior to bankruptcy be included in these collectible amounts? Per condo law attorney James Stevens of Chuhak and Tecson:

"It would depend on the type of bankruptcy. Usually the lien remains against the property in a Chapter 7 but is not enforceable against the owner. The six months amount would remain due post foreclosure if the association takes proper action before the foreclosure concludes. The debt would be paid off during a Chapter 13 so the remaining lien is not particularly an issue so long as the owner completes their plan."

Bankruptcies and foreclosures can throw a wrench in collection efforts. If your association is experiencing delinquencies coupled with bankruptcies and/or foreclosures, Haus Financial Services can help.


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