Homeowners Still Have Rights under Bankruptcy Law -- Avoid Violating the Automatic Stay

Regarding members of the community association who may be in or are filing for bankruptcy, board members must avoid the knee-jerk reaction of suspending common-area amenities or privileges to that member in retaliation thereof. It may seem logical to suspend these privileges because the member is delinquent on her assessment or fee payments, but such guarantees like voting rights, pool access, and even board membership are all rights that generally cannot be stripped from the member because of the federal bankruptcy court's protection. To do so could result in the issuance of a contempt order against the board member and the Association for violation of the bankruptcy court's automatic stay of proceeding.

Most community association declarations include a rule that all members must be in "good standing" to enjoy access to certain amenities, serve on the board, etc. These rules are only enforceable against a member who is in arrears but not yet in bankruptcy. Once the member has filed for bankruptcy, any attempt to penalize or collect on what's called "pre-petition" debt is seen as a likely violation of the court's automatic stay.

Crazy as it may seem, if a bankrupt member sits on the Association's board, even while past-due debt continues to be owed to the Association, that member cannot be prohibited from serving on the board. Now, this scenario may also present a conflict of interest for the affected board member, as she owes a fiduciary duty to the community, so she can be counseled by other board members to "do the right thing" and abdicate her position. However, final decision rests with the bankrupt member and only she can make that determination.

Finally, if a non-bankrupt member has been penalized for delinquent assessments or fees owed to the association resulting in a suspension of privileges and/or removal from the board, and she later declares bankruptcy, you must reinstate all privileges at once. All privileges that is, except for one: you do not reinstate the bankrupt member to the board. Reinstatement to the board is a maneuver that the board neither has the authority nor the obligation to affect.