Bankruptcy Options if You Are Behind on Condo / Townhome Assessments

Behind on your monthly HOAs, late fees or special assessments owed to your homeowner’s association?

Under Minnesota statute, most defaulted amounts due to a homeowner’s association create an automatic lien against the individual unit, which means that these amounts remain secured against the condo or townhome even after bankruptcy. Because of this statutory lien, the association can collect against a defaulting owner either by way of initiating a lawsuit for personal liability or, less frequently, by foreclosing its lien.

Read more about Condo, Townhome and HOA Association Liens in Minnesota.

While bankruptcy typically discharges one’s personal liability for unpaid assessments as of the date the bankruptcy is filed, the automatic association lien that is created by statute still exists in spite of bankruptcy. Therefore the association retains a right to foreclose the unit either after a bankruptcy discharge is received or during bankruptcy with court approval. Because filing of bankruptcy only offers temporary relief for a defaulting condo or townhome owner who wishes to retain the property, a long term resolution of the association arrears is necessary.

Chapter 13 bankruptcy allows a defaulting homeowner as long as three to five years to repay their association for any “pre-petition” amounts due. While in chapter 13, the homeowner must stay current on the monthly HOAs and any new special assessments or they again will risk an association foreclosure of the unit for “post-petition” amounts due.

Chapter 7 bankruptcy discharges personal liability for unpaid association assessments / HOAs but will not resolve the automatic lien if the homeowner intends to keep the property.

There are options in bankruptcy if you are behind on assessments due to the association and these options vary depending on whether you intend to keep the property. If you own a condo or townhome and are considering bankruptcy to stop a foreclosure or lawsuit, it’s important to understand how bankruptcy may impact your liability for association dues, fees and other assessments, your right to continue to use common amenities, and the risks of foreclosure. Especially under these circumstances, it’s best to get advice from a bankruptcy attorney who understands the various forms of bankruptcy relief to protect your interests with regard to the property.

Attorney Lynn Wartchow is a Minneapolis / St. Paul area bankruptcy attorney representing clients in Chapter 7 and Chapter 13 consumer bankruptcy proceedings in Minnesota since 2005.Call for a free bankruptcy consultation to understand your options in Chapter 13 or Chapter 7 bankruptcy.

Converting from Chapter 13 to Chapter 7: What’s Involved and Why Would You Convert?

Life inevitably changes and things happen that may cause a chapter 13 debtor to no longer need or afford their original chapter 13 plan. A job loss, other reduction of income or unanticipated increase in expenses can all be reasons for a debtor to lose their ability to continue making the chapter 13 plan payments. If the chapter 13 payments become unfeasible and, assuming the debtor qualifies, a chapter 13 case can be converted to chapter 7 for an immediate discharge.

Typically people file chapter 13 bankruptcy for one of two reasons: Either their household income is above the applicable state median income and they do not qualify for chapter 7, or they voluntarily elect to file chapter 13 due to having mortgage arrears, non-dischargeable taxes or other priority debts that can be repaid over the course of a chapter 13 plan. Also debtors may elect to file chapter 13 if they have non-exempt assets that would lose to liquidation by a chapter 7 trustee and instead chose to ‘buy back’ their non-exempt property by making monthly plan payments in chapter 13.

In cases converted to chapter 7 from chapter 13, the debtor must prove that they would qualify for chapter 7 as of the date of conversion (not the original file date) by passing the means test. See What is the “Means Test” and Why Does it Matter in Bankruptcy. The debtor’s bankruptcy attorney will complete a new means test as of the date of conversion to determine if the debtor is chapter 7 eligible. If eligible, the case can be converted by the debtor filing a motion to convert to chapter 7 which gives all creditors and other parties the opportunity to object. (Note that in Minnesota, no motion is required and the debtor can instead file a simple request to convert to chapter 7 along with updated schedules and statements). If the motion/request to convert is granted, the case will proceed as a chapter 7 case and the debtor will attend a chapter 7 Meeting of Creditors before a discharge is ordered.

If your income has gone down or your expenses have increased since your chapter 13 plan was confirmed, you should consult your bankruptcy attorney so she can advise you of what options you have to convert to chapter 7, to have your case dismissed voluntarily or otherwise to modify your chapter 13 plan to reduce the plan payment. Any missed chapter 13 plan payments will result in a quick dismissal of your chapter 13 case so it is important to notify your attorney immediately if you are considering a conversion to chapter 7 from chapter 13. Once a chapter 13 case is dismissed, the debtor will have to pay a significantly larger filing fee to file chapter 7 and also increased attorney fees over the typically smaller attorney fee for just a conversion.

Read more about converting from chapter 7 to chapter 13 bankruptcy here.

How to Postpone the Sheriff’s Sale: Minnesota Statutory Postponement of Foreclosure Sale

In Minnesota, homeowners can apply for a postponement of the sheriff’s sale scheduled in a foreclosure process. So long as the foreclosure process is the standard “foreclosure by advertisement” (i.e., the most common Minnesota foreclosure process for residential homestead property), the sheriff’s sale is at least several weeks away, and the documents are properly completed and recorded in the correct offices, a sheriff’s sale will be automatically postponed by five months. The trade-off to gaining these extra months prior to foreclosure is that the usual six-month redemption period following foreclosure will be reduced to five weeks due to the postponement. Homeowners may wish to postpone their sheriff’s sale so that they remain record owner of the property so that they may qualify for a refinance or mortgage modification.

Under the Minnesota statute, the homeowner is referred to as the “mortgagor” and the lender is referred to as the “mortgagee”.

Be sure to follow the directions closely and watch the timeline for postponement, as the documents must be processed in a specific window of time at least 15 days prior to the sheriff’s sale date.

The general requirements for postponement of sheriff’s sale under Minnesota Statute 580.07:

  • Property must be classified as a homestead property.
  • Property must consist of one to four dwelling units.
  • Property is being foreclosed under a “foreclosure by advertisement” process having a six month redemption period under Minn. Stat. 580.23, subd 1.
  • Homeowner completes a notarized Affidavit of Postponement (see link below) and has it recorded at the county’s recorder office at least 15 days prior to the date scheduled for the sheriff’s sale. Be sure to keep a copy for the next step.
  • Homeowner files by mail or delivers in-person a copy of the recorded Affidavit of Postponement along with a copy of the Notice of Mortgage Foreclosure Sale to the county sheriff’s office at least 15 days prior to the sale date, along with the service fee. Note that the Notice of Mortgage Foreclosure Sale must be attached to the affidavit.
  • Deliver to the attorney/law firm conducting the mortgage foreclosure a copy of the recorded affidavit at the same time that the Affidavit is delivered to the sheriff’s office.

Resources for more information:

Lynn Wartchow is the founding attorney of Wartchow Law Office located in Edina, MN and represents individual consumer and business bankruptcy clients in the Minneapolis / St. Paul and greater Twin Cities metro area in Chapter 7, Chapter 13 and Chapter 11 bankruptcy proceedings filed in the Bankruptcy Court for the District of Minnesota. 

Condo, Townhome and HOA Association Liens in Minnesota

In Minnesota, if you have unpaid condominium or townhome association assessments—which are often called “HOAs”—these unpaid amounts operate automatically as a lien on the property under Minnesota Statute § 515B.3-116(a), which is part of the Minnesota Common Interest Ownership Act.

What a condo or townhome association lien typically means for the homeowner is that you cannot get out of paying past due HOA assessments while you own the property. Further, it means that the property can be foreclosed by the Association for unpaid homeowner’s association assessments even if you are current on your mortgages. Due to the financial risk of having unpaid HOAs, the Association’s Board of Directors will often opt to foreclose for lesser amounts and on quicker timelines than a mortgagee would typically foreclose an unpaid mortgage.

For the Association, the protection of an automatic Minnesota statutory lien on the property provides a high level of protection for the Association from accruing large amounts of unpaid HOA assessments for which the other members of the Association may have to make up via a special assessment. Unpaid HOA assessments can be collected upon against a unit owner via a lawsuit against the homeowner and very likely at the expense of the homeowner when the Association’s attorney fees are added to the statutory lien amount. Under the Minnesota Common Interest Ownership statute and likely under the Association’s declaration and bylaws, the automatic lien also includes other amounts and charges associate with collection efforts.

Additional to these legal remedies, many Minnesota homeowner’s declarations and bylaws include the provision that the Association may suspend the rights of any owner or occupant including their guests to use the common element amenities. This means that not only will that homeowner be denied their voting rights, but also that a homeowner’s right to use common amenities such as laundry, parking and other services may be suspended for the non-payment of HOA assessments and other charges due to the Association. Minnesota law does not usually allow for the Association to suspend utility services and physical access to the unit.

The best bet is to stay current on your Association dues and avoid any accrual of assessments, late charges and other fees. Bankruptcy may help you by discharging some amounts due to the Association, but the availability of bankruptcy relief for condo or townhome liens is often dependent on the individual circumstances and whether the owner intends to keep the property.

Located in Edina, Lynn Wartchow represents homeowners in all Chapters of bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout Minnesota.

What Happens after the 341 Meeting of Creditors is Over?

The answer to this depends on whether you have filed Chapter 7 or Chapter 13 bankruptcy. (Chapter 11 individual debtors also are required to attend a Meeting of Creditors). At a minimum and for all Chapter 7 and Chapter 13 cases, the debtor must take the second financial management course and file the certificate with the Bankruptcy Court. The Notice of the Meeting of Creditors will give a specific deadline for filing the certificate in a chapter 7 case (the certificate can be filed anytime up to the week prior to the discharge being received) while in chapter 13 the certificate may be filed at any time before their chapter 13 Plan is complete.

In most Chapter 7 cases, attendance at the Meeting of Creditors which occurs about one month after your case is filed, is the last active event for a debtor in a bankruptcy proceeding. Once the Chapter 7 trustee has concluded the Meeting of Creditors and determined that no additional questions or documents will be needed from the debtor, the debtor only has to complete the second financial management course and wait for their Chapter 7 bankruptcy discharge to be entered by the Bankruptcy Court about two months later. A Chapter 7 case is held usually open for two months after the date of the Meeting of Creditors so that certain actions can be taken in a case. Although these post-Meeting of Creditors actions are somewhat uncommon in the garden-variety Chapter 7 case, potential actions include turnover of a non-exempt asset to the Chapter 7 trustee, a creditor objection to the discharge of a particular debt (which is a common type of adversary proceeding), motions to dismiss a case brought by the attorney for the Office of the United States Trustee, or an administrative audit of the Chapter 7 case. Your Chapter 7 attorney can advise you of the potential actions and other requirements you may expect to occur after the Meeting of Creditors in your bankruptcy case, if anything. However most of the time once the Meeting of Creditors is over, it’s just a matter of waiting for your discharge without any further action required other than completing the financial management course.

In Chapter 13 bankruptcy, the Chapter 13 plan is often confirmed about one month after the Meeting of Creditors is concluded. While plan confirmation requires an additional court hearing, attendance is rarely required at the confirmation hearing and you should not plan to attend unless your attorney advises you to do so. Once confirmed, the Chapter 13 debtor must continue to make all Chapter 13 plan payments as well as any other requirements set forth under the terms of their confirmed Chapter 13 plan (such as to report any bonus income received during the plan to the Chapter 13 trustee or provide income tax returns each year). Since a Chapter 13 case will remain an active bankruptcy case while the plan is underway, there are a number of events that can arise after the Meeting of Creditors that require you’re your and your attorney’s involvement. For example if during the course of the Chapter 13 plan there are significant changes to income or expenses, your bankruptcy attorney may advise you to file a motion to convert to Chapter 7 rather than stay in Chapter 13. Also, if you move or change your address you must notify your attorney.

Located in Edina, Minnesota, Lynn Wartchow represents clients in Chapter 7 and Chapter 13 bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout Minnesota.

How Are Non-Dischargeable Debts Treated in a Chapter 13 Bankruptcy?

Non-dischargeable debts are those few categories of personal liabilities which can never be discharged in either form of Chapter 7 or Chapter 13 bankruptcy. Non-dischargeable debts include most individual income taxes, many business-related taxes such as withholding tax and other trust fund taxes, domestic support obligations, spousal support/alimony and child support, debts related to fraud or fiduciary embezzlement, educational and student loans, unlisted debts and other less common types of debts. (Note that some divorce decree obligations may be dischargeable in Chapter 13.)

One of the great benefits of Chapter 13 over Chapter 7 is that certain non-dischargeable debts can be paid back over time in Chapter 13 plan, usually over five years, which can maximize a Chapter 13 debtor’s cash flow and repayment flexibility. For example in Chapter 13, you can stretch out repayment of priority debts—such as income taxes—over five years versus the standard two to three years the taxing authorities typically require outside of bankruptcy.

It’s important to note that most taxes, domestic support obligations and mortgage arrearages must be repaid in full through the Chapter 13 plan. Practically speaking, this means that the debtor’s budget must demonstrate that they afford the minimum monthly repayment required in order to repay the non-dischargeable over sixty months (in a five year plan).  Your Chapter 13 attorney can help you calculate whether repayment of the non-dischargeable debts is feasible considering your monthly income and expenses.

The flexibility of time in repaying the few categories of non-dischargeable debts is a distinct advantage to Chapter 13. Whether a debt is discharged in bankruptcy is often fact-specific and you should seek the advice of an attorney for more information specific to your circumstances.

Wartchow Law Office advises clients in Minnesota on how Chapter 13 bankruptcy can provide relief and what they can expect from a Chapter 13 plan.  Contact for a free consultation and more information on options available under Chapter 13 bankruptcy. Located in Edina, Minnesota.

 

 

Will My Assets Be Protected in Bankruptcy? What Are the Bankruptcy Exemptions?

Most people who file for bankruptcy are able to protect most if not all of their assets, including cash bank accounts, household goods and furnishings, 401(k) plans and IRAs (as well as other types of retirement accounts), cars and vehicles, their homestead and more. Assets are protected in a bankruptcy by way of exemptions, meaning that an asset is protected when it is ‘exempt from the bankruptcy estate’.  When an asset is exempt, it is outside of the reach of both creditors and the bankruptcy trustee and will not be liquidated to cash to be applied to debts. When an asset is non-exempt, it must be surrendered to the Chapter 7 trustee or otherwise the value liquidated and paid into a Chapter 13 plan.

In both Chapter 7 and Chapter 13 bankruptcy, all assets must be fully disclosed on the bankruptcy Schedules A and B. Assets include any interest in real property as well as all conceivable forms of personal property, bank accounts, and even certain intangible property such as rights to sue and future interests. Exemptions are listed on the bankruptcy Schedule C which restates the property claimed exempt, its value and the amount claimed exempt, and the basis for the exemption under either federal exemptions or Minnesota state exemptions. Both the federal and Minnesota bankruptcy exemptions provide for various categories of commonly exempt property, such as the debtor’s future earnings and income, a homestead interest, vehicles and cars, jewelry, tools of trade used in a debtor’s profession, household possessions and personal effects, retirement accounts, social security benefits, tax refunds, insurance proceeds, and many more. Most exemption categories specify a defined dollar limit for each type of asset exempted and the exemption limits are updated regularly.

While most people’s assets are protected within the available bankruptcy exemptions, common sense dictates that there are reasonable limits to what can be protected when one files for bankruptcy. For example, it may be difficult for a debtor to receive a discharge in Chapter 7 bankruptcy while retaining significant equity a family cabin or rental property. Whether your assets can be protected in bankruptcy is fact dependent and a comprehensive disclosure of assets is an important discussion to have with your bankruptcy attorney before you file bankruptcy. And this is a discussion that should be open and honest since full disclosure of assets is required on the bankruptcy schedules. Additionally, some asset exemption planning steps may be taken before a bankruptcy is filed to maximize your ability to protect certain assets.

Wartchow Law Office provides free initial consultations to discuss your assets and what exemptions may be available to you in either Chapter 7 or Chapter 13 bankruptcy. Located in Edina, MN, Lynn Wartchow represents clients in Minneapolis and throughout Minnesota.

Managing the Business During Chapter 11: Reporting and Other Requirements

When a business files Chapter 11, it becomes a “debtor-in-possession” of its own affairs as a fiduciary to the bankruptcy estate. What this means is that management of the business during the Chapter 11 case will remain under the control of its prepetition management and principals, subject to certain duties to report and maintain the business in a manner consistent with the procedural rules of Chapter 11 business reorganization bankruptcy. While these mostly financial and administrative requirements for operating the business during Chapter 11 are relatively straight-forward and generally represent good business practices, failure to follow these requirements can result in an appointment of a trustee to takeover operations of the business or dismissal or conversion of the case to liquidation.

While the business is in Chapter 11 bankruptcy, it has an obligation to file both a comprehensive initial financial report as well as ongoing monthly operating reports. The monthly operating reports provide an itemization of cash receipts and disbursements, profit and loss statement, balance sheet, copies of all bank account statements and other financial information that facilitates an ongoing review of the debtor’s finances while it is in bankruptcy. These monthly operating reports may be reviewed by any party in interest to the case and also form a basis to determine the feasibility of a plan of reorganization. If the debtor continually sustains a monthly net loss as demonstrated on the monthly operating reports, its hope for reorganization may be diminished.

Additionally, the business debtor must also stay current in the filing of all applicable tax returns and payment of taxes, including monthly sales tax and employee withholding tax obligations. This may be a challenge for businesses that do not maintain regular accounting books and records, or may routinely default in the payment of taxes. If the business accounting records and tax reporting is not current or accurate prior to the Chapter 11 being filed, an effort should be made as soon as possible to arrange the resources necessary to ensure that correct and timely tax filing and payments are made as soon as the Chapter 11 is filed. Tax obligations accrued prior to the bankruptcy may be dealt with in the plan, which often means that pre-petitiion sales tax obligations in Chapter 11 are repaid over five years at low interest.

The Chapter 11 business debtor has additional requirements to these, including the requirement to immediately open new debtor-in-possession bank accounts and close all pre-petition bank accounts, to maintain all insurance standard in the debtor’s particular industry, to pay a quarterly fee to the Office of the U.S. Trustee that monitors the debtor’s finances throughout the Chapter 11 proceeding, to attend various interviews and hearings conducted by the U.S. Trustee, as well as adhere to other restrictions on compensation, partner distributions, use of cash and more.

Keep reading for more on the Chapter 11 process, timeline and fees involved in a reorganization.

A qualified Chapter 11 attorney can advise your business of all the requirements and obligations before a Chapter 11 bankruptcy case is filed. Wartchow Law Office provides initial Chapter 11 consultations to review the business liabilities and other circumstances affecting a possible Chapter 11 bankruptcy proceeding, and to advise on possible options and solutions that Chapter 11 can provide to keep a business operating and improve future prospects.

What is the Median Income in Minnesota and How Does is Factor into Chapter 7 Bankruptcy?

Qualification for Chapter 7 bankruptcy is largely determined by comparing one’s household income to the median income for their state. Essentially, if your gross annual household income exceeds the Minnesota median income for your family size you may not qualify for Chapter 7 and may be required to file Chapter 13 instead. Therefore, the Minnesota median income is a significant factor in determining whether you may qualify for Chapter 7 bankruptcy or if you may be instead steered toward filing a five-year Chapter 13 repayment plan. As of 11/01/2015, the median income in Minnesota for a household of one person is $51,199, for two people $68,515, for three people $80,804, and $98,447 for four people. The median income adjusts at least once per year and these amounts reflect the median income as last adjusted on November 1, 2015 which will again be adjusted in April of 2016.

If you fall above the median income, it’s important to understand that you may still qualify for Chapter 7 bankruptcy if certain factors are present—this is called “rebutting the presumption of abuse” in bankruptcy. These factors are part of a more comprehensive “means test” eligibility calculation and include such expenses as mortgage payments, tax payments, health care expenses, child care and child educational expenses, child support or maintenance payments, and a host of other variables that may be employed to qualify someone for Chapter 7 even if they are above the median income. In general, the higher over the median income a household falls, the less likely it will be to “rebut the presumption” and qualify for Chapter 7. In this case, your option is to file Chapter 13 bankruptcy, which can still be a good solution (see my blog on why Chapter 13 is not always a gloomy diagnosis in bankruptcy).

While some people seek out some of the unique advantages of Chapter 13 bankruptcy—including the possibility of cramming down a car loan, paying off mortgage arrears over five years or even stripping a second mortgage off a homestead—many people still prefer the ease and speed of Chapter 7. Nevertheless, the means test and the median income establish the threshold criteria for whether Chapter 7 or Chapter 13 may be filed, and usually there is little to no wiggle room from the strict results calculated by the means test.

The means test is complicated and often it’s best to have an experienced bankruptcy attorney calculate your household income based on the last six months of income, compare your number to the median income and prepare the means test calculation to determine what type of bankruptcy you may qualify for.

Wartchow Law Office is a law firm located in Edina, Minnesota with an exclusive practice in Chapter 7, Chapter 13 and Chapter 11 bankruptcy law, representing individual consumer and business clients throughout the Twin Cities of Minneapolis and St. Paul, Minnesota. Contact Wartchow Law Office for a free bankruptcy consultation.

What is Individual Chapter 11 Bankruptcy and Why Would I File an Individual Chapter 11?

The vast majority of individuals who file bankruptcy chose to do so under either Chapter 7 or Chapter 13, which are the most common forms of consumer bankruptcy. However, there are certain individuals that may instead take advantage of the greater flexibility that Chapter 11 can provide, especially when the individual has considerable and/or income-producing assets to protect and distinctive objectives to attain in bankruptcy.

(For other detailed discussions on chapter 11 procedure, common issues and more, be sure to read Wartchow Law’s Chapter 11 Blog.)

Chapter 11 arguably offers greater flexibility for an individual than other chapters of bankruptcy. A successfully confirmed individual Chapter 11 plan can restructure secured debts such as mortgages on rental properties and liens on other assets, yet without the close supervision of an appointed bankruptcy trustee. While some restructuring can be accomplished in Chapter 13, a Chapter 11 debtor maintains a higher level of control and input in the terms of the restructured debts as negotiated with creditors.

Especially for individuals having multiple real estate holdings, Chapter 11 provides an opportunity to protect non-homestead real estate equity which could otherwise be lost in Chapter 7 or Chapter 13, and opportunity to reorganize the underlying mortgages to rewrite more favorable terms including potentially stripping a wholly unsecured mortgage from commercial and rental real estate.

An individual may also opt to file Chapter 11 bankruptcy when they do not otherwise qualify for Chapter 7 or Chapter 13. In Chapter 7, individuals must be below a certain income level in order to be eligible for Chapter 7 pursuant to the “means test”. For higher income earners that do not qualify for Chapter 7, most can still file under Chapter 13, which typically involves a partial repayment plan over five years after which time any remaining debt is then discharged. Chapter 13 has certain statutory debt limits that, while for most people do not normally present a problem, pose a challenge for individuals that exceed those debt limits, in particular individuals that may have multiple real estate holdings with corresponding mortgages which easily aggregate to exceed the debt limits of Chapter 13. As of the date of this post, the statutory debt limits for Chapter 13 bankruptcy are $1,081,400 in total secured debt plus $360,475 in unsecured debt (see the current Chapter 13 debt limits).

As few general consumer bankruptcy attorneys practice individual Chapter 11s, it is especially important to consult with an attorney who has filed individual Chapter 11s before and can guide you through the more rigorous, yet arguably much more flexible process, on an individual Chapter 11 bankruptcy.

Lynn Wartchow provides initial Chapter 11 consultations to review liabilities and assets affecting an individual Chapter 11 bankruptcy proceeding. For more information on how Chapter 11 bankruptcy may impact your situation, contact Wartchow Law Office for a free bankruptcy consultation. Located in Edina, Minnesota, Wartchow Law represents clients in all forms of bankruptcy throughout the Minneapolis and St. Paul metro area of Minnesota.