Battle over church’s bankruptcy underscores definition of payment on time

Bankruptcy litigation between Boston’s Charles Street AME Church and its principal creditor, OneUnited Bank is simmering past the boiling point according to news reports in the Boston Globe.

The church filed a bankruptcy case earlier this year to avoid foreclosure on its historic building in the heart of Boston’s black community.

In August, a lawyer for the bank “hammered the Rev. Gregory Groover with questions implying he had lied when he said the church “never missed a payment” on its loans and accused Groover of organizing community protests to “bring pressure to bear” on OneUnited so it would not foreclose on the historic black church.”

In response, Groover acknowledged “the church had made dozens of late payments, but he said it always eventually caught up.”

What’s important here is not a sad and bitter dispute between a church and a bank, but the way in which some debtors creatively interpret the definition of paying on time.

I have no stake in this case, but the bank’s position is essentially the correct one (though that doesn’t really justify calling the pastor a liar in court): you are not “caught up” if your payments come in late, disregarding any grace periods.

For the typical consumer debtor contemplating a bankruptcy case, the distinction can on occasion be an important one.

This is especially true if they are looking into filing a Chapter 13 bankruptcy case to avoid losing a precious asset such as their home.

In Chapter 13, debtors make a plan to catch up on mortgage and tax arrears over a three to five year time frame.

But to calculate such a plan, it becomes important to know exactly what the arrears are.

Minimizing the problem by using mental gyrations to convince yourself that you are actually on time becomes a self-defeating proposition for many debtors once they commit to Chapter 13.

The danger is that once the case is filed and the plan payments started, an unexpected bump in the amount that needs to get paid off can lead to an unpleasant increase in the amount of the debtor’s monthly plan payment to the Chapter 13 trustee.

The moral of the story is that brutal honesty with one’s self and with your bankruptcy lawyer about the extent of the problem will actually lead in most cases to a better result in bankruptcy court — including a plan that can actually be confirmed by the court, and plan payment that does not boomerang into a big shock for the debtor.

 

By Doug Beaton

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