Does modifying payment frequency on an outstanding loan constitute a l

[Guest Tim Breedlove]

Professional Corporation, loan proceedures allow terminated participants to continue to pay on their loans. One term participant has a loan that has been habitually slow pay but never in default. We have been advised that the participant can only pay on the loan once a quarter. They want to re-amortize the loan for quarterly payments, which would not extend the loan beyond the due date of the original note. Would this change be considered a new loan (plan does not allow for new loans to terminated participants) and should the loan be current prior to re-amortization? Thanks for any advice.

[Guest mo again]

Check PLR 9729042. The current thinking is that modifying payment frequency does not constitute a loan renegotiation or renewal when the term and amount of the loan are not being modified, and there is a "business reason" for the modification, such as change in pay frequency. I would think that switching from payroll deduction payment to another method due to termination of employment would qualify as a valid business reason. However, having to perform the reamortization at an increased outstanding balance due to delinquency is more likely to be viewed as a renegotiation. Hence, I would want the individual to be current first.