How HOA Assessments Bankruptcy Discharge Really Works
When an owner in your community files bankruptcy, it can feel like someone yanked the emergency brake on your budget. Collection stops, cash flow dips, and board members often say, “Well, I guess bankruptcy wipes everything out.”
That belief is wrong, and it can cost your association real money.
For Arizona HOA boards and community managers, the key issue is the difference between discharge vs. dismissal in bankruptcy, and how HOA assessments bankruptcy discharge actually works, especially under 11 U.S.C. § 523(a)(16).
In plain language, you need to understand:
• What a discharge is
• What a dismissal is
• Which debts are wiped out
• Which debts survive
• What steps you should take as a creditor HOA
Once you understand that map, you can protect your budget, follow the law, and still treat struggling owners with respect.
Why “Discharge vs. Dismissal” Matters For Your HOA
From the court’s point of view, your association is a creditor. You are in the same general group as the mortgage company, credit cards, and other claim holders. What happens at the end of the bankruptcy case changes your rights.
At a high level, there are:
• Discharges: The court wipes out the owner’s personal duty to pay many pre-bankruptcy debts. Some types of debt survive.
• Dismissals: The court closes the case without a discharge. It is like the case never finished. Your full claim usually comes back into play.
This difference drives almost every important question you have about HOA assessments:
• Can you collect the pre-bankruptcy balance from the owner personally?
• Does your lien against the property still matter?
• Are assessments that came due during the case still owed?
• Did the owner’s account become uncollectible, or did you just lose some time?
Some debts are not wiped out by discharge at all. Congress wrote a special rule for HOA and condo assessments in § 523(a)(16). That rule is at the core of how HOA assessments bankruptcy discharge works.
Bankruptcy Basics in HOA Terms
Think of a typical owner bankruptcy as four moving parts:
1. The owner (debtor)
This is the person who owes assessments and other debts and is asking the court for relief.
2. The HOA as creditor
Your association holds a claim for unpaid assessments, late fees, interest, and collection costs. Some or all of that may be backed by an assessment lien.
3. The automatic stay
The moment the case is filed, federal law stops almost all collection efforts on pre-petition debts. That includes demand letters, lawsuits, lien enforcement, and foreclosure efforts. You must pause those actions, even if you feel the owner is acting in bad faith.
4. The outcome of the case
Most homeowner cases are either:
o Chapter 7 (liquidation), where non-exempt assets (if any) can be sold, or
o Chapter 13 (repayment plan), where debts are paid over 3 to 5 years.
Each chapter can end in a discharge or a dismissal. That outcome decides whether you can still collect pre-bankruptcy assessments from the person, how your lien is treated, and what happens to ongoing dues.
For a broader background on how chapters and creditor rights work together, you can review this bankruptcy overview for Arizona HOA managers.
What a Bankruptcy Discharge Actually Does
A discharge is a court order that says the debtor is no longer personally responsible for certain pre-petition debts. Creditors covered by the discharge cannot chase the debtor personally for those amounts anymore.
Key points for your board:
• Discharge wipes out personal liability, not property rights.
• A valid assessment lien against the lot or unit can still survive, even if the owner’s personal duty is discharged.
• The CC&Rs and covenants that “run with the land” are still in place. Owning the property still comes with ongoing assessment duties.
• Post-petition assessments are non-dischargeable under 11 U.S.C. § 523. Those survive the discharge and remain collectible from the person.
What a Bankruptcy Dismissal Means for Your Collection Rights
A dismissal closes the case without a discharge. The automatic stay ends, and everyone is generally put back in the position they held before the filing, with one big exception: any money you actually received during the case stays paid.
From the HOA’s point of view:
• Your full pre-bankruptcy claim usually springs back, subject to Arizona law and your governing documents.
• You can restart normal collection, including demand letters, interest, liens, and, in serious cases, foreclosure.
• You still must follow fair debt collection rules and your written policies.
You may have lost time and spent effort tracking the case, but you did not lose your rights the way you do after discharge.
What Debts A Discharge Wipes Out And What Survives (11 U.S.C. § 523)
The Bankruptcy Code does not treat every debt the same. 11 U.S.C. § 523 lists many categories of debts that a discharge does not wipe out. That list matters a lot for HOAs.
Think of it this way:
• Credit card debts and many medical bills are often dischargeable.
• Domestic support (like child support) and many recent taxes are not.
• Debts tied to fraud or willful injury may not be discharged.
Congress decided that some duties are too important to erase. One of those duties is paying HOA or condo assessments on property the debtor continues to own or occupy.
How 11 U.S.C. § 523 Works in Plain English
Section 523 is a long list, but the idea is simple:
• If a debt is on the list, it survives discharge, unless the court rules otherwise.
• If it is not on the list and there is no other rule to save it, the discharge usually wipes out the debtor’s personal duty to pay it.
Common non-dischargeable items include:
• Child support and alimony
• Some tax debts
• Some debts caused by fraud or intentional harm
• Certain student loans
• Post-petition assessment HOA and condo assessments
For your board, the main takeaway is that Congress carved out a special rule for assessments tied to real property. You should not assume all unpaid dues vanish in bankruptcy.
For more detail on how your claim type (secured vs. unsecured) affects this, see this guide on secured vs unsecured HOA debt in bankruptcy.
HOA Assessments Under § 523(a)(16): What Survives Discharge
Section 523(a)(16) addresses HOA, condo, and similar assessments. In simplified form, for Chapter 7:
• Assessments that first became due after the bankruptcy filing date, while the debtor still had a legal or possessory interest in the unit or lot, are not discharged.
What that means in practice:
1. Pre-petition assessments
o These are amounts that were due before the filing date.
o The owner’s personal liability for those may be discharged, especially if they are unsecured.
o Any valid assessment lien tied to those amounts can still survive as a claim against the property.
2. Post-petition assessments
o These are assessments that come due after the filing date.
o As long as the owner still holds title or has a right to live there, those assessments are not wiped out in a Chapter 7 discharge.
o You can usually collect them from the owner personally after discharge, and they can also be part of your lien claim.
Pre-Bankruptcy vs Post-Bankruptcy Assessments
Timing is everything:
• Pre-petition means any charge that became due before the filing date.
• Post-petition means any charge that became due on or after the filing date.
You should think in two buckets:
• Bucket 1: Pre-petition balance
o Usually part of your proof of claim.
o Personal duty may be discharged.
o Secured amounts tied to the lien may survive.
• Bucket 2: Post-petition assessments and charges
o Ongoing duty while the owner keeps the property.
o Usually survive discharge under § 523(a)(16) in Chapter 7.
Getting that split right is important for both compliance and recovery. A helpful resource on timing is this guide on how the bankruptcy petition date splits HOA debts.
When you prepare a proof of claim, work with counsel to:
• Freeze the pre-petition balance as of the petition date.
• Track post-petition assessments on a separate ledger.
• Identify which charges are secured under your CC&Rs and Arizona law.
What Happens If The Case Is Dismissed Instead Of Discharged
From the HOA’s viewpoint, dismissal is very different from discharge.
When the court dismisses a bankruptcy case:
• There is no discharge order.
• The automatic stay ends.
• Collection rights usually return to what they were before the filing, minus any payments received during the case.
In short, a dismissal often means your entire pre-bankruptcy balance is still collectible from the owner personally, and your lien rights remain in place.
Compared with discharge:
• Discharge wipes out some or all of the owner’s personal duty for pre-petition amounts.
• Dismissal does not wipe out anything. It just pauses you for a time and then lifts the pause.
After a dismissal, you can usually restart your normal Arizona collection steps, as allowed by your CC&Rs and statutes that govern liens and foreclosure.
How Dismissal Restores Your Collection Options
Once you receive notice of dismissal, you can usually:
• Resume demand letters and lawful collection notices.
• Add late fees and interest allowed by your documents and Arizona law, going forward.
• Record or update your assessment lien, if you have not already.
• Consider a lawsuit or, in serious cases, foreclosure, subject to Arizona thresholds for past-due amounts.
You still need to:
• Respect federal and state debt collection laws.
• Follow your written collection policy consistently.
• Communicate with owners in a clear, professional, and respectful way.
Often, the best outcome is not jumping straight to foreclosure, but working toward realistic payment plans while keeping the community’s financial health in view.
Why Tracking the Case Outcome Protects Your Budget
Every time an owner files bankruptcy, you should track the case to the end:
• Did it end in discharge?
• Was it dismissed?
• Was it converted from one chapter to another?
The outcome shapes:
• How much of the pre-petition balance you can still collect from the owner personally.
• How much might turn into a bad-debt write off that your community has to absorb.
• Whether your next steps are negotiation, lien enforcement, or budget adjustments.
Discharges can create shortfalls that force you to re-think projects, reserves, or even future assessment levels. Dismissals keep your claim alive, but you still have to decide how far to push collection.
The most efficient boards have a system:
• Calendar key dates from the court notices.
• Update account ledgers after the final order.
• Meet with their HOA counsel to pick a strategy: wait, settle, or escalate.
Practical Steps For Arizona HOAs Handling Owner Bankruptcies
Turning all this into action is easier if you follow a short checklist every time an owner files.
1. Pause aggressive collection when you get the notice
Stop demand letters, lawsuits, and foreclosure activity on pre-petition debt.
2. Review your governing documents and account history
Pull the CC&Rs, bylaws, collection policy, and the full account ledger. Confirm what attaches to your lien and what stays unsecured. Articles like what your HOA needs to know about assessment payments in Arizona can help your board understand the lien structure behind those numbers.
3. Work with counsel to file a proof of claim
The proof of claim is your chance to be paid through the case. Missing the deadline can mean losing recovery on the pre-petition balance.
4. Separate pre-petition and post-petition assessments and fees
Lock the pre-petition figure as of the petition date, then track new assessments separately. This protects you from stay violations and lines up with how the court views § 523(a)(16) obligations.
5. Adjust after discharge vs dismissal
Once the case ends, adjust the account based on whether there was a discharge or dismissal. Decide with counsel whether to pursue post-petition balances, lean on lien rights, or, in rare situations, consider settlement of older amounts.
For broader collection process tuning, this guide to improving HOA assessment collections with legal expertise offers ideas on policies, ledgers, and demand practices that work well in Arizona.
Working with HOA counsel to protect assessment income
Bankruptcy law is technical, and small mistakes can trigger penalties or lost recovery. An experienced Arizona HOA attorney can help you:
• Understand discharge vs dismissal and how § 523(a)(16) applies to your case.
• Prepare accurate, complete proofs of claim.
• Respect the automatic stay while still protecting post-petition rights.
• Decide when to seek payment plans, when to wait, and when stronger tools like foreclosure should be on the table.
At Halk, Oetinger, and Brown, HOA assessment collection is a core focus. The firm represents hundreds of Arizona communities and uses flat-rate general counsel services and a contingent assessment collection program for associations. That structure gives you predictable legal costs and lets your board focus on problem solving, not billable hours.
Conclusion
Here is the bottom line for your board:
• Discharge wipes out some personal debts, but not all, and it does not automatically erase liens or covenants.
• Dismissal closes the case without a discharge, so your full pre-bankruptcy claim usually survives and normal collection can resume.
• Under 11 U.S.C. § 523(a)(16), many HOA assessments that come due after the filing, while the owner still has the property, are not discharged and remain collectible.
• Tracking each case to its outcome and working closely with HOA counsel helps you protect your budget, treat owners fairly, and keep collection efforts lawful and professional.
If you want help applying these rules to your own accounts or building a standard process for HOA assessments bankruptcy discharge issues, Halk, Oetinger, and Brown is ready to be a resource for your Arizona community. Their flat-rate model and focused HOA practice give you steady guidance, not surprises, when the next bankruptcy notice arrives.
