Q. Is the debt of an uncollected homeowners association annual dues assessment considered a “secured debt” when filing a Proof of Claim if the owner files for bankruptcy, since it involves real estate (vacant land or land with a home)? Or is it just an unsecured debt?
Creditors of a bankrupt person who has filed for protection are generally lumped into one of two categories by the federal Bankruptcy Code: secured creditors and unsecured creditors. To understand the difference, it is important to understand the difference between a debt and a lien. A debt is a legal obligation to pay money to a creditor. A lien, on the other hand, is a property interest held by the creditor that secures the underlying debt. Thus, secured creditors hold a lien on certain property owned by the debtor (real estate, motor vehicle, equipment, etc.), while unsecured creditors do not have a lien on property owned by the debtor.A Chapter 7 or completed Chapter 13 plan will discharge most or all of a person’s debts, but many liens will survive the bankruptcy discharge, meaning that the creditor may still repossess or foreclose on the collateral even though the debt has been discharged. While this may seem counterintuitive, it makes sense if you think of a mortgage loan. If the lender’s mortgage lien on a home were wiped out by a bankruptcy filing along with the underlying debt, then that would mean any homeowner who filed bankruptcy could keep his house free and clear of the lender’s debt. Certainly that is not the result that Congress intended with the Bankruptcy Code.