For many homeowners in Chapter 13 bankruptcy, few things are more frustrating than receiving a motion from a homeowners association (HOA) claiming nonpayment—especially when payments have, in fact, been made. This situation raises an important legal question: can an HOA successfully lift the automatic stay based on alleged nonpayment, even when the debtor is current?
The answer lies in understanding how the automatic stay works, what an HOA must prove to obtain relief, and how courts evaluate disputes over payment records.
What Is the Automatic Stay and Why Does It Matter?
When a bankruptcy case is filed, the automatic stay under 11 U.S.C. § 362 immediately goes into effect. This stay prohibits virtually all collection activity, including lawsuits, enforcement actions, and efforts to collect pre-petition debts. It applies broadly to all creditors, including HOAs.
The purpose of the automatic stay is to protect the debtor from ongoing collection pressure while ensuring that all creditors are treated fairly within the bankruptcy process. New Jersey courts have consistently recognized the broad scope of the stay, emphasizing that it halts both direct and indirect efforts to collect debts once a petition is filed.
Even where a debt may ultimately be nondischargeable, that status does not create an exception to the stay. As courts have noted, creditors must still comply with the stay unless and until relief is granted.
Can an HOA Still Take Action During Bankruptcy?
Under New Jersey law, HOAs have statutory authority to enforce their governing documents, including the collection of assessments, under N.J.S.A. 46:8B-16. This can include imposing fees, pursuing legal action, or seeking injunctive relief.
However, once a bankruptcy case is filed, federal law takes precedence. The automatic stay overrides an HOA’s ability to take collection action unless the association first obtains relief from the bankruptcy court.
This means that while an HOA retains its rights, it cannot exercise them freely during bankruptcy proceedings.
What Does an HOA Have to Prove to Lift the Stay?
An HOA may file a motion for relief from the automatic stay under 11 U.S.C. § 362(d). To succeed, the HOA must demonstrate “cause,” which often includes allegations such as nonpayment or lack of adequate protection.
However, simply alleging nonpayment is not enough. The court will evaluate the evidence presented, including payment histories, account ledgers, and plan compliance. Courts have broad discretion to grant, deny, or condition relief based on the specific facts of the case, as recognized in decisions such as Finderne Heights Condominium Ass’n v. Rabinowitz and Hacker v. Jaime-Valdez.
If a debtor is current—or can demonstrate that payments were made—the HOA’s motion may be denied.
What If the HOA’s Accounting Is Wrong?
In practice, disputes over payment records are more common than many expect. HOA ledgers can contain errors, misapplied payments, or timing discrepancies, particularly in Chapter 13 cases where payments may be made through a trustee or under a structured plan.
When this occurs, the issue becomes one of proof, not assumption. Bankruptcy courts rely on documented evidence, not merely the creditor’s assertions.
Debtors may challenge inaccurate claims by presenting:
- Proof of payment
- Bank records
- Trustee disbursement records
- Correspondence showing account discrepancies
In some cases, it may also be appropriate to request a formal accounting of the debt to clarify the record.
Can You Request an Accounting from the HOA?
Yes. In situations involving disputed balances, requesting a detailed accounting can be a critical step. While HOAs are not mortgage servicers, similar principles of transparency and accuracy apply when a creditor seeks relief from the stay.
Where servicing entities are involved, federal law such as the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2605, may provide mechanisms to request information and account reconciliation.
Even outside of RESPA, courts expect creditors seeking relief from the stay to present accurate and supportable figures. If the underlying numbers are flawed, the motion itself may fail.
Does It Matter If You Are Otherwise Current?
Yes. Courts evaluating a motion for relief from the stay will consider the totality of the circumstances, including whether the debtor is complying with the terms of the Chapter 13 plan.
If a debtor is current on plan payments and ongoing obligations, that fact weighs against granting relief. Conversely, a pattern of missed payments or lack of compliance may support the HOA’s position.
The key issue is whether there is legitimate “cause” under § 362(d)—not merely whether a creditor claims there is.
What About Sanctions or Improper Motions?
In certain situations, if a creditor files a motion based on inaccurate or unsupported claims, the issue of sanctions may arise. While courts do not impose sanctions lightly, they expect parties to act in good faith and to verify the accuracy of their filings.
Repeated or unsupported motions, particularly where evidence shows payments were made, may expose a creditor to judicial scrutiny.
How This Connects to Your Chapter 13 Case
Understanding how stay relief works is critical to successfully navigating Chapter 13. As discussed in our related articles, “What Happens After You Finish Chapter 13 Bankruptcy Payment Plan?” and “Can Married Couples File Separate Chapter 13 Bankruptcies to Get Under the Debt Limit?”, bankruptcy is not just about filing—it is about maintaining compliance, addressing disputes, and protecting your rights throughout the process.
Disputes with creditors, including HOAs, are not uncommon. What matters is how those disputes are handled.
Take the Next Step: Protect Your Rights in Bankruptcy
If your HOA is claiming nonpayment or seeking to lift the automatic stay, it is important to act quickly and ensure that your payment history and legal position are clearly presented to the court.
Mistakes in accounting or unsupported allegations can have serious consequences if not addressed properly.
At Scura, Wigfield, Heyer, Stevens & Cammarota LLP, we help clients navigate complex bankruptcy disputes, including motions for relief from the automatic stay and creditor challenges.
If you are facing a dispute with your HOA or another creditor, contact our office to discuss your options and protect your position.
