Goudelock v. Sixty-01 (Washington State)
The issue at stake is whether an owner of real property within a community association, who files a bankruptcy petition under Chapter 13 of the Bankruptcy Code, may discharge all past and future assessments that accrue during ownership. When an owner files a Chapter 7 bankruptcy petition there is a specific statute that precludes from discharge all post-petition assessments. 11 U.S.C. § 523(a)(16). The Bankruptcy Code, however, is silent as to whether post-petition assessments are discharged under other bankruptcy chapters.
There is a split of authority throughout the United States as to whether owners who file a
Chapter 13 bankruptcy are liable for ongoing assessments. The Ninth Circuit is arguably the
most influential since it is the largest in terms of geography and population. As such, the
outcome of this case threatens the livelihood of community associations throughout the country from being able to collect assessments once they file a Chapter 13 bankruptcy.
If the Ninth Circuit holds against community associations, it will create a heightened duty of record keeping that few boards or management companies will be able to maintain. Specifically, if an owner is relieved of all personal liability to pay assessments after filing a Chapter 13 bankruptcy, the association must keep a record of that bankruptcy and never attempt to collect a future debt for unpaid assessments from the owner personally – even if the owner was not delinquent at the time he/she filed bankruptcy and even if the bankruptcy was filed decades ago.
The lower bankruptcy court and district court both agreed the owner must pay the ongoing assessments notwithstanding a discharge under Chapter 13. In this case, the Amicus Review Committee recommends that the amicus brief squarely address the issue of Ms. Goudelock's surrender of the property and the fact that the association never objected to the bankruptcy plan. These are difficult facts that distinguish this case from In re Foster, the case that the bankruptcy court relied on. There are two Ninth Circuit Bankruptcy Appellate Panel ("BAP") decisions that hold the same. BAP decisions, however, are not binding on any other court. As such, the outcome of this decision will be seminal for community associations.
Amicus Brief
Prior Ruling: order affirming bankruptcy court opinion
Brief Author: Brian R. Fellner, Esq.
CAI Amicus Brief Review Committee: Robert Diamond, Esq., Chair of Amicus Committee, Gary Kessler, Esq. (CA), Jennifer Loheac, Esq. (GA), Henry Goodman, Esq. (MA), James L. Strichartz, Esq. (WA)