Some owners will go into bankruptcy and, despite still holding legal title to the property in the HOA, will "walk away" from the property. In most HOAs the fact an owner has abandoned the property will not absolve the owner of his or her obligation to pay assessments. Likewise, it will not affect that HOA's lien for assessments. As with all such matters, a careful review of the covenants of the HOA is the first step in pursuing a collection.
The lien on the property is usually not affected by bankruptcy, but that does not mean enforcement of the lien is the most effective means of collecting past-due assessments. The lien will usually be subordinate to a first mortgage, so the possibility of collection through foreclosure of the lien is curtailed. The lien is still useful to have and a notice should be recorded, as it will help ensure payment of the past-due assessments in the event of a sale.
Often the best alternative for collection is a suit directly against the owner, leaving the lien and the property out of it. Although the owner may not have a lot of assets after the bankruptcy, the owner will also not have a lot of unsecured creditors competing for the owner's income, because they will have lost their rights in bankruptcy. In any event, a judgment awarded after bankruptcy can survive for years and will not be subject to discharge in a future bankruptcy, because debtors are precluded from filing serial bankruptcies under existing law.
With a thoughtful approach and good legal advice, an HOA has good alternatives for collecting past-due assessments from owners who have gone through bankruptcy. In a time when more and more people are defaulting on obligations, it is a board's duty to be aware of and to pursue the available means of collection.