Judge Hillman Says No to Balloon Plans in Massachusetts

18 Apr Judge Hillman Says No to Balloon Plans in Massachusetts

Massachusetts Bankruptcy Judge Hillman decided sua sponte to deny confirmation of a Chapter 13 plan with a balloon payment. See In re Melillo, 2008 WL 987095 (Bkrtcy.D.Mass. 2008). The debtor in the case had proposed a plan to cure arrears by making small periodic payments followed by a larger balloon payment. The creditor did not object to the treatment. The Court on its own initiative rejected the plan based on 11 U.S.C. § 1325(a)(5)(B)(iii)(I). This section requires that a Cort shall confirm a Chapter 13 plan if the “property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts.” This “equal monthly amounts” is controversial and has created a split in the case law. The Court read the provision to prohibit all balloon payments.

There was, however, alternative grounds for plan confirmation. A Court must confirm a plan when “the holder of such claim has accepted the plan.” Here, where the creditor had raised no objection to the plan, the Court could have, as the debtor urged, found that the creditor had accepted it. The Court stated that a creditor had “a reasonable expectation that I will not approve treatment which violates the Bankruptcy Code” even in the absence of an objection. However, under any reading the treatment does not actually “violate” the Bankruptcy Code. If the affected creditor accepts the plan, the treatment is allowed. Given the duty imposed upon parties to make their positions known, the Court could have deemed the creditor’s silence as acceptance of the pan.

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