Writing off bad debt

An accounting call, not a legal release

A delinquency and a write off are not the same event. The assessment debt and the association's lien can remain legally valid even after the board decides, for accounting purposes, that the balance is not worth carrying as a collectible asset. Writing it off takes the number off the association's financial statements. It does not, by itself, release the lien, forgive the owner, or promise the board will never try to collect again.

No single national accounting standard sets the exact method or timing for this decision. Boards should follow their CPA's guidance and any state nonprofit or association accounting requirements rather than treat a specific write off method as universal. What your state requires for association financial reporting, and what your CPA recommends, varies. Ask your CPA before writing anything off.

When boards actually reach for this

Three situations come up most often. First, bankruptcy: a Chapter 7 discharge wipes out arrears that came due before the owner filed, but not assessments that come due afterward, for as long as the owner keeps an interest in the unit.

"For a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit... for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit."

Source: 11 U.S.C. § 523(a)(16), U.S. Code, via Cornell Legal Information Institute

Only the pre-filing arrears are candidates for write off here; post-filing assessments are still owed and still collectible. See Bankruptcy.

Second, foreclosure by a first mortgage lender. In states that follow the model lien-priority approach, the association's lien only outranks the mortgage for a limited recent slice of the debt, illustrated at six months of assessments in one state's statute, and Fannie Mae's own lending standards track that same limited window. Anything the sale proceeds do not reach becomes a question for the board and its CPA, not an automatic loss and not an automatic recovery. See Lien priority.

Third, an owner's death followed by a closed or expired probate. The debt and lien survive the owner's death, but pursuing them runs into short, unforgiving probate deadlines that work differently from ordinary collection timelines; missing one can permanently bar the claim. See Owner death and Probate.

Who decides, and what stays open

Write off decisions belong to the board, informed by the CPA and, where a legal barrier like bankruptcy or probate is involved, by counsel. Because the decision touches one owner's specific financial and legal situation, discuss the account the same way you would a payment plan: outside the open portion of the meeting, with only the fact that it was discussed noted in the minutes afterward. Whether your state's open-meeting law requires or permits this kind of closed discussion for a specific owner's account varies; check your state statute and bylaws.

A write off can be reversed if circumstances change, for example if the owner later sells the unit or comes into money, unless the board has also taken a separate step to legally release the lien or the claim. Treat "written off the books" and "gone for good" as two different questions.