Collection Efforts – Associations
In Re Richard D. Hawk
The United States Bankruptcy Court for the District of New Jersey has determined in a recent matter, In Re Richard D. Hawk, that Associations must file a stay relief motion in a Chapter 13 case in order to proceed in its collection efforts against a debtor owing sums to the association arising post-petition.
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Bankruptcy Courts across the country have viewed this particular issue differently, and the Judge in this case viewed this as an opportunity to address this particular issue as a matter of first impression in the District of New Jersey.
In this particular case, the debtor filed a Chapter 13 Petition in 1999. The debtor’s Chapter 13 Plan was confirmed in May 2000. The debtor failed to maintain payment of post-petition obligations (all of which arose post-confirmation) and the association proceeded against the debtor. The debtor filed a motion alleging the association was in violation of the automatic stay, sought to have the Court order all collection efforts to cease, and to impose sanctions. The Court ruled in favor of the debtor that the stay had been violated, but ruled against sanctions.
The Court analyzed that the obligation for the debtor to pay assessments arose upon the taking of title, and that the obligation to pay assessments is not determined upon the annual assessment authority of an association. That is, it is not the date when assessments are set that obligates an owner to make assessment payments. Rather, it is the execution and recording of the deed that obligates the owner to make assessment payments.
Therefore, the Court reasoned since conveyance of title took place before the actual filing of the bankruptcy (title conveyance will always occur before the filing of a bankruptcy under these sets of facts), the obligation of the debtor was an unmatured, contingent claim, was pre-petition debt, and the association could not seek collection without first obtaining stay relief from the Bankruptcy Court.
While it is important to note that although this particular Judge’s decision is not binding on all Bankruptcy Judges in the District of New Jersey, associations must consider this case as persuasive upon other Judges in the District. It is probably prudent that all collection activity seeking post-petition amounts be done so by way of a stay relief motion. This includes any collection activity that arises post-petition. A copy of the case is available upon request.