An HOA used small-business bankruptcy to reorganise around a homeowner's judgment
An HOA used small-business bankruptcy to reorganise around a homeowner's judgment
2026-09-10 · Georgia · Courts
What happened. A homeowner won a fee award against her association in state court. Before she could collect, the association filed for subchapter V bankruptcy — the small-business fast track — and reorganised. The Eleventh Circuit, whose published decisions bind Georgia, largely upheld the result.
In re Ellingsworth Residential Community Ass'n, Inc.; Guan v. Ellingsworth Residential Community Association, Inc., Nos. 21-12969, 21-12971, 21-13231, decided 13 January 2025. Tjoflat, J., with Branch and Luck, JJ. Published; affirmed in part, vacated and remanded in part.1
How it started
Alice Guan failed to conform her yard to the covenants. Her association sued her in state court — instead of arbitrating, as its governing documents provided.
That was the mistake that decided everything downstream. The state court awarded Guan costs and fees on the basis that the association had waived its claims by suing rather than arbitrating.
Before she could collect, or press her counterclaims, Ellingsworth filed for subchapter V relief in the Middle District of Florida.
What the Eleventh Circuit decided
It affirmed the district court's orders upholding:
- Ellingsworth's subchapter V designation — that is, that a community association can qualify as a small-business debtor on that track;
- confirmation of its reorganisation plan; and
- denial of Guan's motion for relief from the automatic stay.
It vacated one thing only: the dismissal of Guan's appeal from the bankruptcy court's refusal to abstain. Applying Ritzen Group v. Jackson Masonry, the court held that denial was a final, immediately appealable order — “there is nothing left for the Bankruptcy Court to do in that ‘proceeding’ and the order is final.”
It was careful about scope: “We emphasize the limited nature of our decision. We take no position on the merits of Guan's abstention appeal.”
Why Georgia readers should care
The case arose in Florida. It is binding precedent in Georgia because the Eleventh Circuit covers Georgia, Florida and Alabama, and the opinion is published.
What it establishes for Georgia is not a point of bankruptcy procedure. It is that a community association is a business that can reorganise — including against a homeowner-creditor holding a judgment it does not want to pay.
The arbitration waiver is the part that matters to boards
Strip away the bankruptcy and the origin of this case is a governance error that Georgia associations make routinely: the association sued when its own documents said arbitrate.
Georgia declarations increasingly contain alternative dispute resolution clauses, and Georgia's 2026 legislative session produced two separate bills — HB 512 and SB 108 — that would have required an association to adopt and follow a written ADR policy before creating a lien. Neither passed.
So in Georgia the ADR obligation, where it exists, comes from the declaration — and Ellingsworth is the demonstration of what ignoring it costs. The association did not lose because its covenant claim was weak. It lost because it went to the wrong forum, and a court held that waived the claim.
What this does not mean
Three limits worth stating plainly, because the headline invites overreading.
It is not a route to escape assessments. Subchapter V reorganises a debtor's obligations; the association's income is still assessments and its plan still has to be funded by them. Bankruptcy does not make an association's costs go away, it reschedules them.
It is not cheap. A subchapter V filing involves counsel, a trustee, a plan and confirmation litigation. For most Georgia associations facing an ordinary adverse judgment, the cost exceeds the judgment.
It is not consequence-free for owners. A Georgia condominium in bankruptcy is a project a lender will look at very hard. Fannie Mae's project standards treat pending litigation touching safety, structural soundness or habitability as an eligibility problem, and an association in reorganisation raises exactly the questions a Full Review is designed to surface — which, since 3 August 2026, established condominium projects can no longer avoid, the Limited Review path having been retired.2
What it means for a Georgia homeowner suing an association
Principally, that a judgment against an association is not the end of the matter, and that timing matters.
- An automatic stay stops collection. Guan could not enforce her award, and could not get relief from the stay.
- Counterclaims can be caught too. Her unpursued counterclaims were swept into the same process.
- Move promptly on a fee award. The window between an award and a filing is where enforcement happens.
The Georgia comparison worth having is Channing Cove, where a Rockdale County judge in May 2025 granted an association's own motion to enforce a $40,000 settlement with a homeowner who had sued over a lien for under $3,000 — and where the homeowner noted the payout came from the association's insurance. Insurance is the ordinary answer to an adverse association judgment. Bankruptcy is the answer when insurance does not respond.
How Georgia's new statute changes the calculus
From 1 January 2027, Chapter 43-17A adds a supervisory layer that did not exist when Ellingsworth filed.
The Secretary of State may “deny, suspend, or revoke a registration statement,” may “limit the fines or fees that an owners' association may collect,” and may bar an officer, director, trustee, executive personnel employee or board member, on a finding that the action is in the public interest.3
None of that is displaced by a bankruptcy filing — registration is a regulatory status, not a debt. A Georgia association that reorganised around a homeowner judgment would still hold a registration the state could act on, and the homeowner would still have the complaint route under § 43-17A-5.
That is a genuine change. The Ellingsworth homeowner's only forum was a court, and the association was able to choose a different court.
What to watch next
Whether any Georgia association attempts the same manoeuvre, and whether the abstention question the Eleventh Circuit expressly left open gets answered. The court held the refusal to abstain was appealable and took no position on whether it was right — which means the substantive question of when a bankruptcy court should step aside from a community-association dispute remains open in this circuit.
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