Q&A: Collecting from a Bankrupt Owner

Q “I own a condo in Southern New Jersey. An owner in our association is in arrears  of $1,300 on their monthly maintenance and has now filed for bankruptcy. Can we  still put a lien on the owner’s unit? If not, what can we do to recoup what’s owed our association? There are only 14 units and we do not have a property  management company. We generally take care of things ourselves to save money.  Do we have to hire a lawyer to represent our interests in this situation?”  

 —Concerned About Arrears  

A “You have indicated that you own a condominium in Southern New Jersey and that an  owner in the association is in arrears $1,300 on their monthly fees. That owner  has now filed for bankruptcy. You asked what the association can do to collect  on the money’s that are owed.  

 “First and foremost, the association is most likely precluded from filing a lien  representing the delinquent account,” says attorney Stuart J. Lieberman of the Princeton-based law firm of Lieberman & Blecher, P.C. “In most cases, associations have a right under the Condominium Act to file a  lien in cases where property owners are delinquent on their monthly  assessments. However, in the case of bankruptcy there is an automatic stay pursuant to  Section 362 of the Bankruptcy Code, which appears to preclude the association  from filing a lien.  

 “Specifically, once a bankruptcy petition is filed, most legal actions taken  against the bankrupt petitioner are put on hold. This is referred to by lawyers  as an ‘automatic stay.’ The effect of the automatic stay is that the bankrupt estate remains status quo,  so that the bankruptcy court can work things out and either allow for  reorganization or liquidation of the bankrupt estate.  

 “Among other things, the automatic stay precludes any act to create, perfect or  enforce a lien against the property of the estate or the property of the debtor  to the extent the lien secures a pre-petition claim. It therefore seems that the prudent and legally appropriate response is to not  file a lien against a unit owner who has filed for bankruptcy.  

 “This does not mean that the association has no remedies available to it once  bankruptcy has been filed. The association will be a creditor in the bankruptcy  case and will file a claim in the bankruptcy proceeding.  

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