Q: What do I do if I receive a Notice of Bankruptcy Filing?
A: You should inform your collections attorney immediately if you receive notification that a homeowner has filed bankruptcy. If we have an active collections file against the homeowner, we are required to suspend further collections efforts against the homeowner while the bankruptcy is pending.
If we do not have an active collections file against the homeowner, we recommend you forward the notice to your collections attorney anyway. We are able to access the Bankruptcy Court's records and can file any paperwork necessary to be sure that the association is protected throughout the bankruptcy proceedings. We can also monitor the proceedings and update you as to any significant developments in the proceedings.
Q: What do I do if I receive a Notice of Possible Dividends?
A: Please inform your collections attorney as soon as possible if you receive a Notice of Possible Dividends. If the Bankruptcy Trustee is able to locate funds that could be distributed to creditors during a bankruptcy, the Trustee issues a Notice of Possible Dividends. The funds are then distributed to creditors, in order of their priority. In order to be eligible to receive funds, a creditor must file a Proof of Claim with the Bankruptcy Court. The Notice of Possible Dividends will state a deadline by which time the association must have their Proof of Claim filed. Please forward the Notice of Possible Dividends to your collections attorney with adequate time to file the Proof of Claim before the due date.
Q: How long does a bankruptcy last?
A: The length of the bankruptcy is difficult to predict, as it depends on many factors out of our control. However, a Chapter 7 bankruptcy commonly lasts 6-9 months, while a Chapter 13 bankruptcy commonly lasts 3-5 years.
If a homeowner in the collections process has filed bankruptcy, the association's status report will provide information about the progress of the bankruptcy. The following are common questions regarding status report entries regarding the bankruptcy:
Q: Why are there months of entries that say only that you are monitoring the bankruptcy? Why are you not trying to collect from the homeowner?
A: While the homeowner has an open bankruptcy pending with the Bankruptcy Court, we are very limited in our collection options. We cannot actively make any efforts to collect from the homeowner. We will file any necessary paperwork with the Bankruptcy Court and will monitor the bankruptcy proceedings every 30 days in order to confirm that the association's interests are as protected as possible during the bankruptcy process.
If the homeowner intends to retain ownership of the property after the bankruptcy in complete, they are required to continue to pay current assessments as due, even during the bankruptcy process. Please let us know as soon as possible if a homeowner is not paying current assessments while their bankruptcy is pending.
Q: What is the difference between a discharge and a dismissal?
A: If a homeowner successfully completes a bankruptcy, their debts are discharged. In a Chapter 7 bankruptcy, this means that the balance due as of the date the bankruptcy was filed must be written off and is no longer a personal obligation of the homeowner. Once a bankruptcy is discharged, you will receive a letter from your collection attorney with additional information about the effects of the discharge.
However, occasionally a bankruptcy will be dismissed. A dismissal generally occurs when a homeowner fails to comply with a requirement during the bankruptcy process. If the error is not corrected, the bankruptcy is dismissed, which allows us to immediately proceed with collection efforts. The full balance remains due from the homeowner, as though no bankruptcy had been filed.
When a delinquent homeowner files bankruptcy, it can be frustrating, but we are here to help! If you have any additional questions about bankruptcy in general, or questions regarding a specific homeowner in bankruptcy, please contact us at 303-432-9999. The attorneys in our Collections Department would be happy to assist you.