This week, I am digging deeper into the bankruptcy world to discuss the Automatic Bankruptcy Stay. I’m guessing you are not a stranger to this term and that at some point you have been told that you cannot do “XYZ” because of the Automatic Bankruptcy Stay. But, what is that?
The Automatic Bankruptcy Stay is imposed by 11 US. Code § 362, which is a federal law and applies in both Washington and Oregon. Once an owner/debtor files their bankruptcy petition with the Court, the Automatic Bankruptcy Stay is effective immediately. The Automatic Bankruptcy Stay is very broad and it prohibits the continuation or commencement of almost all actions against the owner/debtor or the lot/unit. This means that all collection actions, whether by the Association or by a collections attorney or agency, must cease until the Automatic Bankruptcy Stay is lifted or expires. Even sending a courtesy notice that contains the full balance owed, including amounts becoming due prior to the bankruptcy filing, could be considered a violation of the Automatic Bankruptcy Stay. For this reason, once the Association receives notice of an owner/debtor’s bankruptcy filing, the account should be flagged to ensure that notices that could be considered a violation of the Automatic Bankruptcy Stay are not sent until after the bankruptcy is resolved.
All that being said, the Automatic Bankruptcy Stay only applies to a “collection action” and does not apply to “non-collection” correspondence, such as budget notices, annual meeting notices, or violation notice letters. Most of the time, the Association can continue to send invoices for assessments as they come due in the normal course, as long as the notice does not contain any mention of the past-due amounts that became due prior to the date of the bankruptcy filing. The Automatic Bankruptcy Stay prevents the Association from requesting payment or attempting to collect amounts becoming due prior to the date of the bankruptcy filing. In some rare circumstances, the Automatic Bankruptcy Stay may apply to invoices for post-bankruptcy assessments, so it is a good idea to check with your attorney to verify whether the Association can continue to send invoices for post-bankruptcy assessments to the owner/debtor. All “non-collection” correspondence should continue to be sent by the Association to the owner/debtor, even if the owner/debtor is in an active bankruptcy.
It is important to be aware of the Automatic Bankruptcy Stay because if the Association is found by the Court to have willfully violated the Automatic Bankruptcy Stay, the Court could award enter an order against the Association for actual damages, including the owner/debtor’s costs and attorneys' fees, and possibly punitive damages. The Association would be required to pay these amounts to the debtor and the amount cannot be offset by the amounts the owner/debtor owes to the Association.
If you receive notice that an owner/debtor has filed bankruptcy, please contact your legal counsel immediately. And, as always, if you have any questions regarding the Automatic Bankruptcy Stay, or would like to discuss bankruptcy or collections in general, please do not hesitate to contact our office.
This week, I am digging deeper into the bankruptcy world to discuss the Automatic Bankruptcy Stay. I'm guessing you are not a stranger to this term and that at some point you have been told that you cannot do "XYZ" because of the Automatic Bankruptcy Stay. But, what is that? read more
The Washington Condominium Act (WCA) implied warranties are again under attack by some in the building industry. In the 1990s and early 2000s there was a glut of terrible construction that resulted in huge repair costs and a lot of litigation. The WCA warranties provided recourse for many owners with construction defects during that time. The warranties have also forced the construction industry to raise the "industry standard" when it comes to quality construction. Removing such protections would pave the way for a repeat of past mistakes read more
One of the benefits of being general counsel for many community associations—both HOAs and condos—is that we can recognize frequently misunderstood, confusing and difficult issues, and help our clients avoid them. One misunderstanding that arises quite frequently is the failure to properly distinguish between directors and officers. With election season approaching for many of you, we thought a short discussion about a few director v. officer distinctions might be helpful.* read more
President Truman started a yearly tradition in 1947 by pardoning a Thanksgiving turkey. That practice now takes place every year by the sitting president. You probably didn't know that insurance advice shares a common characteristic of the turkey read more
The last week saw high winds, power outages, and colder temperatures sweep into the Pacific Northwest, announcing that winter is on its way. For condominium owners, cold weather brings a variety of risks that, if left unaddressed, can impact not just their own unit, but the units of their neighbors. Thankfully, there are a number of simple steps owners can take to avoid these risks and make in through winter unscathed. read more