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Rewriting 11 U.S.C. § 523(a)(16): The Problems of Delayed Foreclosure and Judicial Activism

2014
Emory Bankruptcy Developments Journal, Volume 30

To protect the interests of homeowners’ associations and other housing communities in situations where their member homeowners have declared bankruptcy, § 523(a)(16) of the Bankruptcy Code excepts from discharge any “fee or assessment” that becomes due after the order of relief, as long as the debtor has a “legal, equitable, or possessory ownership interest” in the property. This section was intended to unify through legislation a split of authority deciding how to handle such postpetition fees.

Unfortunately, by electing to protect first and foremost the interests of HOAs, Congress placed debtors in a position not conducive to the idea of a fresh start by which bankruptcy law is ordinarily guided. The result is a group of cases that are inconsistent with one another and with the Code, as some courts have taken steps to attempt to ease the burden on the debtor, while others have noted with resignation that, fair or not, the Code’s plain language is clear and precludes judicial intervention. Further muddying the waters, the problems with the Code are different depending on whether the debtor’s discharge was affected under § 727, § 1328(a), or § 1328(b).

Given that the Code as written has failed to accomplish the unity sought in curing the split of authority, Congress should revisit not only its language but also the policy that informed the amendment. The nation’s economic realities have changed since the 2005 amendment was passed, and these changes have brought into sharp focus the problems with the exception as it currently applies.