In testimony submitted to both houses of Congress this month, the Community Associations Institute recommended four changes to bankruptcy reform legislation that would protect condominium, cooperative and homeowners associations from potentially devastating losses of assessment income. In keeping with the intent of the Bankruptcy Reform Act of 1994, CAI's recommended clarifications would ensure that members of all types of community associations who file for bankruptcy are obligated to pay association assessment fees as their case proceeds through the courts.

Mandatory assessment fees are required to fund the maintenance and management of all types of community associations, from snow removal and trash pickup to insurance premiums and reserve funding. Community associations are non-profit organizations that can suffer substantial financial hardship due to the loss of assessment income. The current Bankruptcy Code provides that only owners residing in condominium and cooperative associations who file for bankruptcy and continue to live in or rent their units are obligated to continue paying association assessment fees.

CAI's proposed clarifications would: Include homeowners associations and commercial condominium associations under rules for community associations, because they face the same member bankruptcy problems as condominium and cooperative associations; Delete occupancy requirements, because community associations must pay expenses for units whether they are rented, owner-occupied or vacant; Ensure that post-petition assessments are not dischargeable as long as the debtor or the trustee has an ownership interest in the unit. Ensure that community association assessments are not considered dischargeable executory contracts, thus protecting associations in Chapter 13 bankruptcy proceedings to the same degree as in Chapter 7 and 11 cases.

"This is a true pocketbook issue for the 42 million Americans who live in community associations. Amending the existing bankruptcy code as suggested would establish a more equitable environment for community associations, debtors and all unit owners in the association," said Gary A. Porter CPA, president of Porter & Co. and 1998 president of CAI. "These clarifications would ensure that community associations can fund their maintenance and management responsibilities without raising assessments to cover income lost to owner bankruptcy."

The Community Associations Institute is a nonprofit association created in 1973 to educate and represent the nation's 205,000 community associations—condominium associations, homeowner associations and cooperatives. CAI members include homeowners, associations and related professionals and service providers.