1. The Southern District of Florida (Federal Bankruptcy Court) issued a memorandum opinion addressing two debtors’ proposed chapter 13 plans, both of which included a balloon payment to their respective mortgagees in the final month of the plan. In re: Dora Benedicto, Case No. 15-28671-BKC-RAM, In re: Claudia Del Carmen Gonzalez, Case No. 14-20339-BKC-LMI. The Court surmised that the balloon payments included in the proposed plans violated the “plain language” of 11 U.S.C.A. § 1325(a)(5)(B)(iii).
  2. Section 1325 (a)(5)(B) of the bankruptcy code allows a court to confirm a chapter 13 plan over a secured creditor’s objection; however, among other requirements, the “periodic payments” must “be in equal monthly amounts.” 11 U.S.C.A. § 1325(a)(5)(B). The debtors and at least one bankruptcy court interpreted “periodic payments” to exclude a final balloon payment because a “balloon payment satisfies the debt in full and thus by definition cannot be repeated periodically, whether in equal amounts or otherwise.” In re Cochran, 555 B.R. 892 (Bankr. M.D. Ga. 2016). The Southern District disagreed with this limited definition of “periodic payment” explaining: “As the last payment, the final payment will never be ‘recurring,’ but it is still the last in a series of ‘periodic’ payments and, therefore, must be equal in amount to the preceding payments.” The Court refused to confirm the debtors’ proposed chapter 13 plans due to the inclusion of the balloon payments.
  3. The Southern District’s interpretation of section 1325 is well-founded. Without adequate monthly payments that reduce the debtor’s mortgage principal, the borrower may be unable or unwilling to make the balloon payment at the end of the chapter 13 plan despite reaping the benefits of the plan for all but the last month. The bank should not be forced to accept such a one-sided plan that could disincentivize a debtor from successfully completing the plan. This holding is a welcome development for mortgagees.

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