In The Matter of Evelyn Mattera

203 B. R. 565 (U.S. Bankr. Ct. D. N.J. 1997)
  • Opinion Date: January 7, 1997

BANKRUPTCY; CONDOMINIUMS—A condominium association unsuccessfully argues in Bankruptcy Court that an owner that surrendered its interest in a unit was liable for post-petition dues and assessments.

An individual filed a petition in bankruptcy under Chapter 13 of the Bankruptcy Code. Under the Chapter 13 plan, she surrendered a time share interest she had in a Maryland condominium. She listed a bank as the secured lienholder of this interest (which was in the same amount as the bank’s secured claim) and the condominium association as a secured creditor. The debtor received a discharge in April, 1993, but made a motion to reopen the case in 1995 after a judgment was entered in a Maryland District Court in favor of the condominium association for unpaid assessments that accrued subsequent to her bankruptcy discharge. The debtor sought to vacate the judgment, claiming her interest in the property was discharged under the bankruptcy plan, and she did not occupy, use, or derive benefit from the time share since filing for bankruptcy. The debtor asserted that post-petition assessments arising out of a pre-petition contract are discharged because they fall within the Code’s definition of “claim.” The condominium association contended that debtor’s discharge was limited to pre-petition assessments, and that there was no evidence that her interest was actually surrendered since title to the time share remained in her name in the land records. The association also claimed that her agreement to pay dues in the deed and condominium declaration was not an executory contract (dischargeable under the Code), but a covenant that ran with the land. Finally, the association argued that the Bankruptcy Court no longer had jurisdiction since debtor’s case was closed.

First, the Bankruptcy Court cited express authority in the Code to reopen a closed case. Next, the Court considered whether post-petition assessments may be discharged by a debtor as a pre-petition obligation. Resolution turns on the definition of the word “claim” as used in the Code and interpreted by case law. The Code defines “claim” as a right to payment, whether this right is liquidated or unliquidated, fixed or contingent, matured or unmatured, secured or unsecured, legal or equitable. One line of cases holds that post-petition assessments are dischargeable because the debt arose prior to the bankruptcy filing. A second line of cases concludes that an association has no claim against a debtor until each assessment becomes due, since the obligation to pay is a function of owning the land and does not arise from any pre-petition contractual obligation. A third line of cases, sometimes referred to as “result oriented decisions driven by equity,” holds that post-petition circumstances may relieve a debtor of liability despite continued ownership, depending on whether the debtor lives there or receives benefits therefrom, for example. The Bankruptcy Court felt the first line of cases best reflected the plain meaning of the word “claim”, and that such an interpretation was in accord with the United States Supreme Court observation that Congress intended to adopt the broadest possible definition. The Court found that the condominium association in this case had a right to payment before the debtor filed for bankruptcy, regardless of whether the debtor’s obligation was secured by contract. The Court concluded that at the time of the bankruptcy filing, the debtor’s obligation for post-petition assessments was a contingent, unmatured, unliquidated, unfixed right to payment which constituted a “claim” and a “debt” under the Code. To hold otherwise would render the terms “contingent,” “unmatured,” and “unliquidated” irrelevant, as used in the Code. The Court concluded that the plan expressly provided for surrender of the debtor’s interest in the condominium, listed the association as a secured creditor, and that the debtor’s successful completion of her Chapter 13 plan discharged pre- and post-petition liability to the association.