Bankruptcy: Homeowners' Association Assessments and the Chapter 13 Automatic Stay

  The United States Bankruptcy Court in Alexandria, Virginia, in the case of Montclair Property Owner’s Association, Inc. v. Reynard, ruled that a homeowner’s association may collect post-petition assessments from a Chapter 13 debtor’s property that is not property of the bankruptcy estate.

     In making its decision, the bankruptcy court noted that courts have taken different approaches with respect to the extent of the bankruptcy estate after confirmation of a Chapter 13 plan and, indeed, whether there is an estate after confirmation.  The bankruptcy court ruled, however, that Bankruptcy Code §1306(a) includes in the Chapter 13 estate all property acquired by the debtor after confirmation, including future earnings.  If the Chapter 13 estate did not have these assets, it could not pay pursuant to the plan.

     In this case, no relief from the automatic stay was necessary, as there was no judgment yet obtained to execute upon.  However, the court did rule that no relief from the automatic stay is necessary to collect post-petition homeowner’s assessments from property that is not property of the estate.  Collection activities may only be directed to property of the debtors, not property of the estate.  All post-confirmation earnings are property of the estate.

Bankruptcy: Chapter 7 Petition - Substantial Abuse

     The United States Bankruptcy Court at Harrisonburg, Virginia, in the case of In Re: Rodriguez, dismissed a debtor’s Chapter 7 petition for “substantial abuse” pursuant to Bankruptcy Code §707(b) where the debtor’s voluntary monthly contribution of $286 to his 401(k), as well as his post-petition purchase of a Ford pickup truck, clearly indicated that the had the ability to fully fund a Chapter 13 plan without incurring undue hardship.
     The Bankruptcy Court found that the debtors’ post-petition purchase of the new truck resulted in a net increase in monthly transportation-related expenses of $220. This voluntary increase indicated that the debtor felt that he had the ability to pay at least that amount to his creditors. The increase in transportation-related expenses and the contribution to the 401(k) alone total over $500 per month that the debtor could have used to pay his creditors. In doing so, the debtor could have paid his creditors 100 percent in less than 10 months. Conversely, if the debtor remained in Chapter 7, the majority of his creditors would receive nothing.
     The debtor’s Schedule I indicated that he enjoyed steady employment with the same employer for eight years, and expected to earn $38,000 in that current year. Nothing in the other schedules filed with the debtor’s petition indicated a sudden illness or calamity which might have necessitated filing for Chapter 7 protection.
     The Bankruptcy Court found that the debtor’s post-petition truck purchase, made with the knowledge that a short-term 100 percent Chapter 13 plan was feasible, constituted the kind of egregious abuse that Bankruptcy Code §707(b) was intended to prevent.
     The lesson of Rodriguez - review Chapter 7 schedules for the ability to pay.