What Credit Unions Need to Know About Online Account Access and Bankruptcy

Credit unions should be aware of a recent bankruptcy court decision that directly impacts how member account access is managed when a member files for bankruptcy.

Historically, many institutions, including credit unions, have automatically restricted online account access once a bankruptcy is filed. However, in In re Klemkowski, 664 B.R. 681 (Bankr. D. Md. Oct. 30, 2024), the United States Bankruptcy Court for the District of Maryland held that restricting a debtor's ability to make online mortgage payments after filing for bankruptcy constitutes a violation of the automatic stay.

Key Takeaways for Credit Unions:

• Automatic restrictions may create legal risk. Limiting or cutting off members' electronic access to make payments when they file bankruptcy can be viewed as a violation of the automatic stay.
• Mortgage servicing policies should be reviewed. Credit unions offering mortgage products should carefully evaluate their policies around online payment access to ensure members in bankruptcy are treated consistently with those not in bankruptcy.
• Consumer protection alignment. Policies should balance compliance with bankruptcy law while supporting members' ability to remain current on their obligations-something courts recognize as consistent with consumer protection goals.

Bottom line, all credit unions should evaluate their policies and procedures to carefully evaluate how their policies align with bankruptcy law.