1st Circuit B.A.P. Rules on Balloon Payments

09 Mar 1st Circuit B.A.P. Rules on Balloon Payments

The U.S. Bankruptcy Appellate Panel for the First Circuit recently issued its highly-anticipated decision on the permissibility of balloon payments in Chapter 13. The long-and-short of it is that the panel held that the 2005 bankruptcy amendments eliminated balloon payments as an option for Chapter 13 debtors. The case Hamilton v. Wells Fargo Bank can be accessed here.

The impact of this ruling is that debtors will not be able obtain confirmation of most Chapter 13 plans that depend on a sale or refinancing of a home. There may be some remaining options to craft viable plans containing sale or refinancing terms, but the scope of what is permissible has been restricted by this decision.

The bankruptcy amendments now pending in Congress would provide a solution to this problem by allowing debtors to extend mortgage repayment terms beyond the duration of traditional Chapter 13 plans. Whether these amendments will survive the Senate yet unknown.

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