Opinion
No. 08-11411.
May 7, 2009
Memorandum re Chapter 13 Plan Providing for Balloon Payment
Secured creditor GMAC Mortgage, LLC, holds a first deed of trust on the debtors' real property at 2501 McMillan Street, Napa, California. Debtors Jose and Venedita Acosta have proposed a Chapter 13 plan which provides:
Debtors shall make adequate protection payments, to the Trustee, in the sum of $1,874.41. Principal shall be paid in one installment upon Debtors' refinance or sale of the Real Property. Such refinance or sale shall occur between 48 and 60 months of the effective date of the Plan and, at such time, the adequate protection payments shall cease and Debtors' monthly Chapter 13 Plan payment shall decease accordingly.
The debtors assert, and GMAC does not contest, that the property is not the debtors' principal residence so that the anti-modification provisions of § 1322(b)(2) of the Bankruptcy Code do not apply. GMAC argues that the form of modification the debtors propose is not permissible. The court agrees, albeit for a different reason than that argued by GMAC.
GMAC relies primarily on In re Enewally, 368 F.3d 1165, 1171 (9th Cir. 2004), which holds that when a secured creditor's rights are being modified by a Chapter 13 plan the modified payments cannot extend beyond the 60-month maximum life of a Chapter 13 plan. The debtors' plan does not violate the holding of Enewally because GMAC is to be paid in full within 60 months. However, by proposing a balloon payment at the end, the plan violates the "equal payments" provision of § 1325(a)(5)(B)(iii)(I) added by Congress in 2005.
Section 1325(a)(5)(B)(iii)(I) provides that if the plan calls for payments to a secured creditor, those payments shall be in equal monthly amounts. This provision eliminates the sort of plan the debtors have proposed with "adequate protection" payments for a few years and a balloon payment at the end. As the court noted in rejecting this sort of plan in In re Hamilton, 401 B.R. 539, 543 (1st Cir. BAP 2009):
Overwhelmingly, courts have held that by its very terms, a balloon payment is not equal to the payment that preceded it, and thus violates § 1325(a)(5)(B)(iii)(I) with respect to periodic payments on a secured claim under a chapter 13 plan. See In re Carman, 2008 WL 2909863, at *1 (Bankr.D.Mass. July 25, 2008); In re Wallace, 2007 WL 3531551 (Bankr.M.D.N.C. Nov. 12, 2007); In re Luckett, 2007 WL 3125278, at *2; In re Newberry, 2007 WL 2029312, at *3-4 (Bankr.D.Vt. July 10, 2007); In re Lemieux, 347 B.R. 460, 463 (Bankr.D.Mass. 2006); In re Wagner, 342 B.R. 766, 772 (Bankr.E.D.Tenn. 2006); In re DeSardi, 340 B.R. 790, 805 (Bankr.S.D.Tex. 2006); see also William J. McLeod, Trick or Treat: A (Not-So)-Scary Look at Equal Monthly Payments Under § 1325(a)(5), 24-Oct. Am. Bankr.Inst. J. 14 (2008); but see In re Davis, 343 B.R. 326, 328 (Bankr.M.D.Fla. 2006). Here, the Debtor's plan provides for a balloon payment at or near completion of the plan. By its very terms, the balloon payment is not equal to the preceding payments and therefore it is prohibited by § 1325(a)(5)(B)(iii)(I).
While there is no binding authority on the issue in this circuit, Hamilton appears to be a correct interpretation of the law and the court will accordingly follow it. The objection of GMAC will accordingly be sustained and confirmation denied. Counsel for GMAC shall submit an appropriate form of order.