For a lot of people, the lock down has severely affected their finances. So much so that some people may have been forced to think of different ways to earn an income while at home, just so they can meet their recurring payments.
While recent legislation has made it possible to defer monthly payments on loans, rent and the like, the grace period provided by law may not always be enough to tide the pandemic and some people may still find it difficult, if not impossible, to meet their monthly payments as they fall due. After all, not everyone is liquid or has a cash.
An individual may thus have sufficient assets to meet his/her total debt, but insufficient cash to meet his/her monthly debt payments.
Not having sufficient cash to meet one's monthly payment, however, does not necessarily mean insolvency. Yes, the individual may be well on his/her way there, but it can still be prevented. There are still sufficient assets to meet the debt, just not enough cash to meet the upcoming payments.
For those who find themselves in this situation, did you know that Philippine law allows you to petition the Court for a suspension of your payments?
This is one of the options available to individual debtors, as provided under Republic Act No. 10142, otherwise known as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010".
Under FRIA, any individual debtor who has assets that exceed his liabilities but foresees the impossibility of paying his debts when they respectfully fall due may file a verified petition in court for the suspension of payments.
Once this petition is filed, and if the court finds it to be sufficient in form and substance, a "Suspension of Payments Order (SPO)" will be issued. This order prevents creditors from suing or instituting collection proceedings against the debtor, among others, while the debtor, creditor/s, and the Court all consider a plan for the debtor to settle his or her debts.
Thus, while the SPO is in effect, the law requires the debtor to meet with his/her creditors and propose & agree on a plan to meet his/her total debts or liabilities. If the debtor's proposal is approved by the creditors, in accordance with the rules, and subsequently approved by the court, then all parties will be required to abide by it until the debtor is able to fully satisfy and settle his/ her debts. Otherwise, the petition will be dismissed and creditors may proceed against the debtor, as if the petition was not filed.
Although proceedings for Suspension of Payments under the FRIA may be tedious, this is an option available to debtors who find themselves unable to meet recurring or upcoming debt payments but have sufficient assets to meet their total debt, which may disqualify them from being considered insolvent. In fact, since the debtor is expressly prohibited from making any payments outside of the necessary or legitimate expenses of his/her business or industry and for as long as the proceedings are pending, the SPO may even give the debtor a chance to save or earn money while waiting for his/her proposal to be considered and approved.
Another positive side to this remedy is the possibility of interests and penalties no longer being charged against the debtor. However, since any plan is subject to the approval of creditors holding at least sixty percent (60%) of the total claims, then a proposal to waive interest and penalties should also be equitably tempered by the debtor, lest the said creditors decide not to approve the proposal, thereby defeating the purpose of the petition.
At the end of the day, the proceedings for Suspension of Payments is a balance between the debtor's ability to pay and the creditors' right to receive payment in accordance with their agreement, in keeping with the declared policy of FRIA, which is to encourage debtors and creditors to collectively and realistically resolve and adjust their competing claims and property rights.