President Signs Bankruptcy Bill

On April 14, 2005, I reported on passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Today at 2:35 EST, President Bush signed the bill into law. Most of the provisions of the law will be effective on October 17, 2005, 180 days after today. Except for a few provisions of the bill, the new law will not affect bankruptcies filed before October 17, 2005. Under the Act, community associations can expect to collect more delinquent common assessments than they did under the old law. In large part, this is because the Act makes it more difficult for anyone to eliminate their personal obligation to pay debts through bankruptcy ("discharge").

The Act also includes a specific provision for the protection of community associations. Bankruptcy courts across the country have had different rules for delinquent assessments after an owner files bankruptcy. Some courts said that the right to assessments arise at the creation of the community and when the bankruptcy filing occurs, assessments after the bankruptcy filing can be discharged. A few courts said that assessments after the bankruptcy cannot be discharged. A 1994 law made assessments after the bankruptcy filing non-dischargeable in a residential condominium or cooperative if the owner resided in or rented out the apartment. However, the different rules continued to exist for many planned community associations and commercial condominiums or cooperatives. The 1994 law also meant that if the owner moved out or stopped renting the apartment, the post-petition delinquencies could be discharged. The Act makes all post-petition common assessments non-dischargeable.

I will be posting a short FAQ about the law and how it affects community associations shortly.