Chapter 13 debtors’ plan that did not provide for the payment of ongoing condominium assessments could be confirmed over the objection of the homeowners association. The obligation to pay future assessments arises prepetition and, therefore, the obligation, although contingent and not yet matured, is a dischargeable “debt” within the meaning of Bankruptcy Code Sec. 1328(a).
The debtors abandoned their condominium and stopped paying association assessments almost two years before filing for bankruptcy. Wishing to avoid personal liability for ongoing assessments, the debtors’ proposed plan provided for the transfer of title in the condominium to the bank holding a first mortgage on the property.
The bank and the homeowners association objected to confirmation of the debtors’ plan. The bankruptcy court sustained the bank’s objection as to the debtors’ proposed forced transfer of title through the Chapter 13 plan because, under applicable state law, a transferee of property must accept the transfer and the bank was not willing to accept the proposed transfer.
However, the debtors did not have to divest themselves of title to avoid personal liability for future assessments. The bankruptcy court identified a split among courts regarding the dischargeability of ongoing association assessments under Sec. 1328(a). Some courts assert that assessments arise under covenants that run with the land and conclude that ongoing assessments are not dischargeable. Other courts view assessments as arising under a contractual agreement between the parties. Under the latter view, adopted by the bankruptcy court in this case, ongoing assessments are a “debt” as contemplated by the discharge provision under Sec. 1328(a).
Characterization of Future Assessments
The term “debt” is defined by the Bankruptcy Code as a “liability on a claim,” and the term “claim” is defined very broadly as a “right to payment.” Using the Code’s broad characterizations of “debt” and “claim,” the bankruptcy court observed that the debtors’ prepetition act of taking title to the condominium gave rise to the homeowners association’s claim for assessments, including a contingent and unmatured claim for future assessments.
The bankruptcy court also noted that the characterization of ongoing assessments as a “debt” was supported by Sec. 523(a), which provides that certain debts, including debts for ongoing association assessments, are not dischargeable under Chapters 7, 11, 12, or Chapter13 if the debtor receives a hardship discharge under Sec. 1328(b). By including ongoing assessments on the list of debts in Sec. 523(a), Congress identified those obligations as “debts” and as a corollary identified them as dischargeable absent a specific exception.
Moreover, the bankruptcy court rejected the homeowners association’s argument that future assessments are not dischargeable because they arise postpetition. Not only did the debtors’ obligation to pay ongoing assessments arise prepetition when the debtors took title to the condominium, the association’s argument would render Sec. 523(a)(16), which provides for the nondischargeability of ongoing assessments unless the debtor receives a discharge under Sec. 1328(a), meaningless because postpetition debts generally are not subject to discharge. Moreover, the court observed that allowing for the discharge of ongoing assessments is consistent with Congress’ policy that Chapter 13 should provide broader relief than other chapters of the Bankruptcy Code.
In re Coonfield, 2014 Bankr. LEXIS 4097 (Bankr. E.D. Wash. Sept. 25, 2014)