66 East Main Street, 3rd Floor Little Falls, NJ 07424

“Clogged” Conduit – Cannot Constitute Relief from Stay

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  • Debtor Filed a Chapter 13 Bankruptcy Petition.
  • Plan provided for payments to the Trustee for the Mortgage pre-petition arrearages.
  • Trustee would act as a conduit to make the payments to the Lender.
  • Lender filed post-petition relief from the automatic stay since the Debtor was $11,500 in post- petition arrearages.
  • Debtor learned of this when served with bank’s motion.
  • Debtor objected to the bank’s motion since she provided proof that all her payments were timely to the Trustee and the documents support her weekly payroll deductions and payments to the Trustee’s office.
  • Trustee’s office confirmed that the Debtor was current on all plan payments. The timing and amounts of disbursements were based on the Trustees’ offices administration of conduit plans.

Court Ruling

  • Debtor’s plan was a “conduit plan” and only needed to satisfy her obligation under the plan for automatic stay protection.
  • Court found that the lender made a prima facie case for the stay relief, but the debtor prevailed because the delinquency was not her fault.
  • It is reasonable for the Debtor to assume that the payment to the mortgagee under the terms of the Plan.
  • No ruling was made on the Trustees’ offices for customary practices of timing of payments.