Post-Petition Condo Fees Discharged in Chapter 13

Posted by NCBRC - March 29, 2018

Although a chapter 13 debtor continues to accrue post-petition condo fees while in bankruptcy, discharge extends to his in personam liability for those fees. In re Wiley, No. 16-15361 (Bankr. D. Md. Jan. 26, 2018).

Chapter 13 debtor, Christopher Wiley, owned but did not live in a condominium unit subject to a mortgage lien and a lien held by the condominium association based on post-petition fees and assessments. The mortgagee was granted relief from stay to foreclose but had not done so for over a year. Mr. Wiley’s confirmed plan surrendered the property to the lienholders for foreclosure with any deficiency in sale proceeds being treated as an unsecured claim. The plan also provided that estate property would not vest in the debtor until discharge.

The condominium association moved for relief from stay to exercise its in rem right to foreclose against the unit, and to institute an in personam collection action against Mr. Wiley. In response, Mr. Wiley moved the court to appoint someone to sell the property. The chapter 13 trustee objected to the motion to the extent that the in personam collection action would impact estate property.

The court began with the finding that the Association’s motion with respect to its in rem rights was moot as Mr. Wiley’s confirmed plan ceded that right.

Turning to the issue of the Association’s claim against Mr. Wiley personally, the court recognized that treatment of post-petition Association fees was unsettled in the circuit. It adopted the reasoning in Carrollan Gardens Condominium Association v. Khan (In re Khan), 504 B.R. 409 (Bankr. D. Md. 2014) where the court found that, because section 523(a)(16) was not included in the exceptions to discharge listed in section 1328(a), a debtor’s personal liability for post-petition fees and assessments would be discharged upon completion of his plan. While the debtor’s chapter 13 was open, however, the debtor would continue to be personally liable for fees accruing post-petition.

In an attempt to limit the accumulating fees and assessments, Mr. Wiley requested that the court appoint someone to sell the property, but the court found that to be unnecessary. Section 363 authorizes the debtor (or the trustee) to sell the property without action by the court. The court found that having granted the mortgagee relief from stay to pursue foreclosure, the mortgagee’s failure to pursue that remedy would be an equitable factor supporting a finding of creditor’s consent to a short sale by the debtor under section 363(f)(2).

As to the Association’s motion for relief from stay to collect from Mr. Wiley personally, the court noted that the parties were bound by the confirmed plan which provided that estate property would not vest in Mr. Wiley until after discharge. The court mused that “[a] bankruptcy court should be cautious in such circumstances about permitting in personam collection actions against the Debtor’s post-petition wages or property of his estate. Otherwise, action by a creditor bound by a confirmed Chapter 13 plan might adversely impact the success of that plan. On the other hand, it is not certain that the Debtor will ultimately receive a discharge under § 1328(a), and it may be unfair to the Condominium to delay indefinitely reduction of its post-petition assessment claim to judgment.” The court agreed with those courts finding that until the Association’s claim is reduced to judgment it would be inequitable with respect to other unsecured creditor to allow it to go after the debtor’s wages or estate property. The court therefore granted relief from stay to allow the Association to reduce its post-petition claims to judgment but found that it was “premature to permit enforcement of any such judgment against property of the Debtor’s bankruptcy estate.”

Thus, the court granted in part and denied in part the Association’s motion for relief from stay, and denied Mr. Wiley’s motion to appoint someone to sell the property.

Wiley Bankr D Md opinion Jan 2018

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