Automatic Stay and 'Home Bill" Loans

Many of our clients plans permit participant loans to be repaid through "home bill" or "direct bill" (i.e. non-payroll deduct).  Is there a best practice for handling an automatic stay issued pursuant to a Chapter 7 or 13 bankruptcy filing in connection with these type of loan repayments?

We understand the bankruptcy code (section 362(b)(19) exempts payroll deduct loan repayments from the automatic stay, but the code is silent on non-payroll deduct repayments. Does that mean non-payroll deduct loan repayments are subject to the automatic stay? If so, are defaults suspended too during the stay?

Thanks!

5 hours ago, in-house ERISA said:

Many of our clients plans permit participant loans to be repaid through "home bill" or "direct bill" (i.e. non-payroll deduct). 

Why would many of your clients allow for that? That is a horrible provision for probably 99% of plans, at least IMO. 

5 hours ago, in-house ERISA said:

Does that mean non-payroll deduct loan repayments are subject to the automatic stay?

I hope someone who does bankruptcy chimes in - but my gut says yes, the loan payments have to stop. 

5 hours ago, in-house ERISA said:

If so, are defaults suspended too during the stay?

No the default is not suspended - I'm not aware of any provision relating to participant loans that makes an exception to loan defaults just because the payments happen to stop due to bankruptcy. I've never even heard of such an exception. Military service, medical leave, etc yes. Those things can suspend defaults. Bankruptcy - NO. 

But maybe someone else will have a citation that proves me wrong. 

Thanks for your input

My bankruptcy knowledge from law school is somewhat rusty and I can't respond to the issue regarding automatic stay (I suspect justanotheradmin is correct on that), but I would point out that as a secured creditor, the plan is in a special position, so I don't think the bankruptcy judge could reduce the amount the participant owes or extend the payment schedule, even aside from the problems that would pose under other federal law, namely Section 72(p) and ERISA.

Thanks for your thoughts. 

I would be concerned that if the automatic stay did apply (so that loan repayments stop), but there is no ability to also delay or stay defaults, the participant could face a tax consequence (deemed distribution) through no fault of his/her own. 

Any additional thoughts would be welcome!

Thanks

in-house ERISA, I believe the debtor can get an exception to the automatic stay if it's Chapter 13. Have them talk to their bankruptcy counsel. But in Chapter 7, no. If the case moves quickly enough, they might get their discharge before end of cure period, but it probably will not move that quickly.